RBI hikes banks' cash reserve ratio by 50 basis points to 5.5 per cent

Mumbai: The Reserve Bank has announced an increase in the cash reserve ratio (CRR) of banks by 50 basis points, to be made effective in two stages, as part of the measures to tighten liquidity and contain inflationary pressures.

The CRR, applicable to scheduled commercial banks, regional rural banks, scheduled state co-operative banks and scheduled primary (urban) co-operative banks, will be raised to 5.25 per cent from December 23 and to 5.5 per cent from January 6, 2007, RBI said in a statement.

The CRR hike would absorb about Rs13,500 crore of banks' resources, the RBI said.

Inflation, meanwhile, has declined to 5.30 per cent in the week ended November 25 from 5.45 per cent the previous week.

RBI said the recent reduction in the prices of petrol and diesel would moderate inflation. However, overall impact on inflation expectation "requires to be monitored and moderated," it observed.

The hike in CRR is in line with the apex bank's policy outlined in its mid-term review for the current fiscal announced on October 31.

The RBI, in its review, had stressed on careful re-balancing and timely measures to maintain the country's economic growth momentum on an "enduring basis".