Mumbai, January 29
Clearly indicating that its priority was to rein in inflation, the Reserve Bank of India today hiked the Cash Reserve Ratio by 75 basis points to 5.75 per cent from 5 per cent.
The CRR is the money banks have to compulsorily deposit with the Reserve Bank of India. Presenting the third quarterly review of the RBI's monetary policy, Governor D Subbarao stated that the CRR would be hiked in two phases — 50 bps on February 13 and another 25 bps on February 27.
The measure is expected to suck out as much as Rs 36,000 crore by the end of the next month. On the other hand, the RBI has left unchanged the reverse repo, repo and bank rates. They remain at 3.25 per cent, 4.75 per cent and 6 per cent, respectively.
Justifying the hike, Subbarao said the country's economic recovery
allowed the apex bank sufficient room to tighten money supply though the risk of degrowth remained. "Though the recovery is reassuring, it is still unbalanced and yet to be sufficiently road-based. Our interest rate stance will balance price stability and support growth," Subbarao said.
The RBI Governor also indicated that
the economic stimulus packages may have to be withdrawn despite the risk of the economic recovery being undermined. “There is need for coordination in fiscal and monetary policy. A reversal of monetary stance is effective only if there is a rollback,” he said. However, the apex bank revised its growth forecast for FY11 from 6 per cent to 7.5 per cent riding on the back of continued recovery in industry and services and stagnation in agriculture. But, the central bank warned that the rising oil prices could prove to be a major dampener.
The RBI warned that inflation by the end of this fiscal would touch 8.5 per cent from the 6.5 per cent forecast earlier. Promising swift response to curb inflation, Subbarao said the results would show from July next.
