RBI hikes CRR by 75 basis points

While the RBI has kept key rates unchanged in its latest quarterly monetary review, it has raised CRR by 75 bps

The Reserve Bank of India (RBI) today increased the mandatory cash reserves of banks held by it by 75 basis points in a bid to mop up excess liquidity to combat rising inflation, reports PTI.

This 75-basis point increase in cash reserve ratio (CRR) to 5.75% is expected to suck out at least Rs36,000 crore from the system. The move from the RBI was widely expected, with food inflation rising to 17.40% for the week ended 16 January. The move is to check food inflation spreading to other sectors.

According to RBI estimates, inflation is likely to touch 8.5% by this fiscal-end from over 7% in December. Earlier in October, the apex bank had projected the rate of price rise to be at 6.5% by March-end.

However, short-term lending and borrowing rates (repo and reverse-repo) between RBI and banks were kept unchanged, leading to speculation that banks\\\' commercial lending rates may not change.

Central Bank of India executive director Arun Kaul told reporters that the CRR hike is more than market expectations and that liquidity would definitely go down and may have some impact on interest rates.

The apex bank also raised its economic growth projection to 7.5% from its earlier estimate of 6% for the current fiscal.
 

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