New Delhi: In a move to control inflation, the Reserve Bank of India (RBI) has hiked the Cash Reserve Ratio (CRR) by 25 basis points to 8.25%. Scheduled banks will be required to maintain the CRR of 8.25% with effect from the fortnight beginning 24 May, 2008.
However, the apex bank has kept the repo, reverse repo and bank rate unchanged. The central bank has also pegged the GDP growth projection for 2008-09 in the range of 8.0- 8.5%.
“Going forward, the resolve is to condition policy and perceptions for inflation in the range of 4-4.5% so that an inflation rate of around 3% becomes a medium-term objective,” RBI said in a statement.
“The policy is a clear indication that the focus of RBI will be on liquidity management while leaving the decision to adjust interest rates to the banking system,” stated Chanda Kochhar, Joint Managing Director & CFO, ICICI Bank Ltd.
“The policy is in line with our expectation. The unchanged repo and reverse repo rates indicate that the RBI is concerned about the growth slowdown,” said Sonal Varma, economist at Lehman Brothers in Mumbai.
“Going forward, we expect the RBI to keep policy rates unchanged, while remaining vigilant on any second round effects of inflation. With interest rate differentials still wide, we see scope for at least one more 50 basis point hike in CRR during the course of the year,” Varma added.
The CRR hike will suck out around Rs9,000 crore from the banking system. It may also compel banks to up interest rates and temper demand for loans, which in turn could help ease inflation by reducing consumption. (With wire inputs)