RBI hikes CRR by 0.5 per cent to control inflation
RBI on Thursday hiked CRR by 0.5% to tighten money supply, as part of concerted efforts with the government to ease inflation. World inflation in pics I War on Inflation
By PTI |
MUMBAI: The Reserve Bank on Thursday hiked Cash Reserve Ratio, the amount of depositors' money that banks need to park with it, by half a per cent to tighten money supply, as part of concerted efforts with the government to ease inflation.
The hike, which would take CRR to 8 per cent, will come into effect in two tranches of 0.25 per cent on April 26 and May 10, the central bank said in a statement here.
The unscheduled hike comes ahead of RBI's annual credit policy for 2008-09 to be unveiled on April 29.
The measure would suck out liquidity to the tune of Rs 18,500 crore from the banking system and would leave banks with less money to lend and in turn would help cool inflation that is at a three-year high of 7.14 per cent.
"In the 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," RBI said in a statement.
The hike, which would take CRR to 8 per cent, will come into effect in two tranches of 0.25 per cent on April 26 and May 10, the central bank said in a statement here.
The unscheduled hike comes ahead of RBI's annual credit policy for 2008-09 to be unveiled on April 29.
The measure would suck out liquidity to the tune of Rs 18,500 crore from the banking system and would leave banks with less money to lend and in turn would help cool inflation that is at a three-year high of 7.14 per cent.
"In the 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," RBI said in a statement.
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The CRR hike comes within a day of Finance Minister P Chidambaram assuring the Lok Sabha that RBI will assess the monetary situation and take appropriate action.
"On a review of current liquidity situation, it is considered desirable to increase the CRR of the scheduled commercial banks... by 50 basis points to eight per cent in two stages," the apex bank said.
Giving the rationale for the increase in CRR, RBI said year-on-year Wholesale Price Index-based inflation, which was 3.83 per cent on January 12, 2008 (at the time of announcement of third quarterly review of credit policy), increased to 7.41 per cent on March 29 and remained at 7.14 per cent as on April 5 and its overall impact on inflation expectations requires to be monitored and moderated.
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