RBI hikes CRR by 50 basis points to 4.5%, to remove Rs 87,000 crore of liquidity

The Reserve Bank of India (RBI) has hiked the Cash Reserve Ratio (CRR) by 50 basis points raising it to 4.5 per cent in a bid to tighten the liquidity. The move is effective beginning fortnight of May 21. The withdrawal of liquidity through increased CRR could be to the tune of Rs 87,000 crore.

The RBI today announced a rate hike to 4.4 per cent, up by 40 basis points in a surprise move that rippled through the equity and bond markets.

The sudden announcement came in the backdrop of retail inflation breaching the RBI's comfort level for three consecutive months. The retail inflation for the month March touched nearly 7 per cent as food prices surged.





Higher edible oil and fertiliser prices can put further pressure on food prices.

Increase in CRR will suck out the excess liquidity from the market and is in line with RBI's announcement of withdrawal of accommodation.