Small BusinessRBI hikes CRR by 75 bps; repo rates untouched
The Reserve Bank of India, in its Monetary Policy review today has hiked the Cash Reserve Ratio (CRR) by 75 basis points (bps) to 5.75 per cent, while holding the repo and reverse repo rates steady in line with market expectations.
- Undisbursed loans may lead to rate war, even if RBI tightens - Quarterly statements: Labour of love for governors? - Food inflation rises to 17.4% - Market in a pincer - Non-bank funds cover up for lower credit flow - Govt banks struggle, but private banks"credit growth picks up
The CRR hike will be done in two tranches. The first one will be for 50 bps with effect from February 13, 2010, and the balance 25 bps will be effective from February 27, 2010. Eventually, this will drain out Rs 36,000 crore from the system.
Repo rate is the rate at which the banks can borrow money from RBI in order to avoid scarcity of funds.
Click here to download the entire policy review.
The move comes on the back of spiraling inflation. Food inflation touched 17.4 per cent for the week ended 16 January 2010, slightly higher than previous week"s 16.81 per cent. Fuel price index rose to 5.7 per cent while primary articles price index touched 14.66 per cent for the week ended 16 January 2010.
A median forecast released by the Reserve Bank of India (RBI) in the pre-policy "Macroeconomic and Monetary Developments: Third Quarter Review 2009-10" yesterday raised the economic growth projection to 6.9 per cent from the 6 per cent projected three months ago.
The WPI-based inflation, which rose from sub-zero level last year to 7.3 per cent in December, is expected to cross 9 per cent by the end of March, as indicated by the Chief Statistician of India Pronab Sen.