RBI hikes the CRR ratio by 0.5% to control inflation
The Reserve Bank of India marked an hike in Cash Reserve Ratio from 7.5% to 8% which is an 0.5% increase.
“In the light of the current macro-economic, monetary and anticipated liquidity conditions, and with a view to containing inflation expectations, it is essential to take appropriate action on an urgent basis,”The RBI said in a press meet.
Also in the meeting the RBI said that “On a review of current liquidity situation, it is considered desirable to increase the CRR of the scheduled commercial banks… by 50 basis points to eight per cent in two stages . The year-on-year Wholesale Price Index-based inflation, which was 3.83 per cent on January 12, 2008 (at the time of announcement of third quarterly review of credit policy), increased to 7.41 per cent on March 29 and remained at 7.14 per cent as on April 5 and its overall impact on inflation expectations requires to be monitored and moderated,”
The RBI also gave some important suggesions like the banks could increase Prime Lending Rate depending on the cost of resources to maintain net interest margin.
IBA chief executive H N Sinor said “The hike was expected to rein in inflation, but he did not see banks immediately increasing interest rates as they would wait to see the outcome of the credit policy”.
The hike in CRR will force the banks to raise lending and deposit rates. so that inflation can be reduced….
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