Howrah News Service -  Latest news and headlines on Howrah,West Bengal and World: RBI hikes cash reserve ratio again

RBI hikes cash reserve ratio again
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NewsByte on 29 April, 2008 08:14:00
 
Mumbai: India's central bank hiked the cash reserve ratio (CRR) for banks by
another 25 basis points today in a bid to contract money supply and contain
price rise, but kept all other key rates unchanged.
Announcing the annual monetary and credit policy for the current fiscal, the
Reserve Bank of India (RBI) Governor Y V Reddy said that the CRR is being
further hiked to 8.25 per cent, after a 50 basis points hike announced earlier.
The unexpected latest hike in CRR ( the minimum reserves banks have to keep as
cash or liquid funds) will be in effect from May 24. It is expected to suck an
estimated Rs 80 billion out of the financial system. The move is to bring down
spiralling prices in India that has pushed the annual rate of inflation to
40-month highs of 7.33 per cent for the week ended April 12. Which is higher
than the central bank's tolerance level of below five per cent.
The central bank expects the annual inflation rate to slow down to 5.5 per cent
by the end of this fiscal, still higher than its tolerance level.
Reddy however, kept unchanged the repurchase rate or repo rate, which is the
discount at which the central bank buys back government securities from banks in
a bid to contract money supply in the system.
The repo rate and the reverse repo rate are presently pegged respectively at
7.75 per cent and six per cent. While the CRR, on account of the previous hike,
was to go up to up to eight per cent as on May 10.
The central bank said it also expected India's growth story to remain intact
and predicted the country's gross domestic product (GDP) to grow by 8-8.5 per
cent during the current fiscal.