labels: Bank general, Economy - general
RBI raises CRR by 0.25 per cent to 8.25 per cent; other rates unchanged news
29 April 2008

Announcing its annual monetary policy for 2008-09, the Reserve Bank of India today set the pace for a tight money supply policy to combat inflation by raising the cash reserve ratio (the amount that banks are required to deposit with the RBI, ) by 25 basis points to 8.25 per cent effective from 24 May. 

It has kept all other official rates intact - the key lending rate remains at 7.75 per cent and the reverse repo rate (which it uses to suck excess cash from banks) continues at 6.0 per cent and the bank rate, which is used for pricing of medium-term and long-term loans, intact at 6.0 per cent.

The stock markets reacted positively with the sensex rising 2 per cent and the Nifty up by 1.7 per cent. The news of a pause in rates led to a rally in bank stocks

The unexpected increase in the CRR comes within a fortnight of a surprise 50 bps in crease in the CRR to 8.0 per cent in two phases, beginning April 26 and to 8.0 per cent from May 10, on 17 April (See: RBI raises CRR by 50 basis points to 8 per cent).

Forecasting a reduced GDP growth of between 8 per cent and 8.5 per cent in the year ahead, RBI has targeted inflation at around 5.5 per cent "in 2008-09 with a preference for bringing it close to 5.0 per cent as soon as possible. Going forward, the resolve is to condition policy and perceptions for inflation in the range of 4.0-4.5 per cent so that an inflation rate of around 3.0 per cent becomes a medium-term objective," it said.

The central bank said it accorded a high priority to "price stability, well-anchored inflation expectations and orderly conditions in financial markets while sustaining the growth momentum.

Hpwever, the RBI governor does not expect inflation to decelerate in the coming weeks.

RBI said that managing liquidity would continue to receive priority in its policy objectives, but it would act swiftly to curb any signs of adverse developments in inflation expectations.

More on the Annual Policy Staetement for 2008-09


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RBI raises CRR by 0.25 per cent to 8.25 per cent; other rates unchanged