To Check Inflation, RBI Increases Cash Reserve of Banks by 75 bp

With a view to combat rising inflation, the Reserve Bank of India has hiked up cash reserve of banks held by it by 75 basis points, said media reports.

Reports said that RBI has nevertheless kept short-term lending and borrowing rates between it and banks unchanged, giving rise to speculation that commercial lending rates of banks may not change.

Also, RBI upped its economic growth projection from its earlier estimate of 6 per cent to 7.5 per cent for the current fiscal, said reports.

It is expected that the 75 basis point increase in cash reserve ratio to 5.75 per cent will such out at least Rs 36,000 crore from the system, said reports.

RBI, which is taking the move to check food inflation spreading to other sectors, estimates that inflation is likely to touch 8.5 per cent by this fiscal-end from over 7 per cent in December, said reports.

Earlier in October, the apex had projected the rate of price rise to be at 6.5 per cent by March-end.

Central Bank of India Executive Director Arun Kaul said that CRR hike is more than market expectation, definitely liquidity would go down and may have some impact on interest rate.

Immediately after the announcement of credit policy, the benchmark Sensex on the Bombay Stock Exchange nosedived by 300 points but recovered from day’s low level. The key index is trading down by over 190 points at intra-day.

(Based on internet reports)