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| RBI raises CRR by 75 bps | | |
AGENCIES
New Delhi Jan 29: In a “harsher-than-expected” move, the country’s central bank on Friday raised the Cash Reserve Ratio by 75 basis points (bps), making a strong pitch for the government’s fight against rising inflation.
The CRR, or the portion of deposits banks are required to park with the apex bank, will be hiked in two stages -- 50 basis points from February 13 and another 25 basis from February 27 – from the present 5 percent, Reserve Bank of India (RBI) Governor D Subbarao told the chief executives of commercial banks here.
Subbarao said the cut in excess liquidity will help anchor inflationary expectations and that the recovery process of the economy will be supported without compromising on price stability.
As inflation was steadily growing and the economy was slowly returning to higher growth trajectory, it was expected that the RBI would tighten monetary policy. But the 75-bps hike, according to investors, is a “more hawkish” move than many expected.
The market had expected and was prepared for a 50-bps hike. However, the central bank in a release issued on Friday said the action was necessary as the “rapidly rising” food inflation was putting pressure on other sectors as well.
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