labels: Bank general, Economy - general
RBI raises CRR by 50 basis points to 8 per cent news
17 April 2008

YV ReddyMumbai: Ahead of its annual credit policy on 29 April, the Reserve Bank of India (RBI) today decided to raise the cash reserve ratio (CRR) - the proportion of deposits banks must keep with the central bank - by 50 basis points in two phases to 8 per cent, to help contain inflation.

"On a review of current liquidity situation, it is considered desirable to increase the cash reserve ratio of the scheduled commercial banks, regional rural banks (RRBs), scheduled state co-operative banks and scheduled primary (urban) co-operative banks by 50 basis points to 8.0 per cent in two stages, RBI said.

CRR on net demand and time liabilities will go up from the current 7.5 per cent to 7.75 per cent from the fortnight beginning April 26 and to 8.0 per cent from May 10, RBI said.

The increase in CRR on liabilities of the banking system is expected to absorb about Rs18,500 crore from the banking system.
 
"In light of the current macro-economic, monetary and anticipated liquidity conditions, and with a view to containing inflation expectations, it is essential to take appropriate action on an urgent basis," the central bank said.

It may be recalled that in the third quarter review of the monetary policy for the year 2007-08, the RBI had stated that over the period ahead, liquidity management will continue to assume priority in the conduct of monetary policy. It was further stated that the liquidity conditions are being shaped by several underlying factors and their developments have implications for liquidity management going forward and warrant appropriate and timely action, the release noted.

RBI said it had managed to absorb an average Rs40,088 crore through the liquidity adjustment facility (LAF) during April 3-17 as against average daily injection of liquidity of Rs27,385 crore during March 17-31.

Year-on-year inflation, which was 3.83 per cent on January 12 (ie, at the time of the announcement of third quarter review), increased to 7.41 per cent on March 29 and remained at 7.14 per cent as of April 5 and its overall impact on inflation expectations requires to be monitored and moderated, the release said.

Yesterday finance minister P Chidambaram had saisd in the Rajya Sabha that strong growth could not go hand in hand with anti-inflatioinary measures (See: Strong GDP growth cannot exist with inflation control, says Chidamabaram; RBI ready to act says Reddy) and had on an earlier occassion said that the government would not shy away from sacrificing "some growth" in order to control inflation.

"In the light of the current macroeconomic, monetary and anticipated liquidity conditions, and with a view to containing inflation expectations, it is essential to take appropriate action on an urgent basis", the bank added.


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RBI raises CRR by 50 basis points to 8 per cent