RBI cuts CRR to infuse Rs 48,000 Cr
The Reserve Bank in a surprise move on Friday announced 0.75 percentage
points cut in its key policy ratio to pump Rs 48,000 crore in the
economy, but the move may not lead to immediate reduction in lending
rates. Without waiting for the scheduled policy review due next week,
RBI reduced the cash reserve ratio (CRR)-the portion of deposits banks
require to keep with the central bank from 5.5 per cent to 4.75 per cent
with effect from tomorrow with a view to ease the liquidity situation.
With this move, the Reserve Bank of India (RBI) would be injecting
around Rs 80,000 crore into the economy in less than 40 days. The
central bank in January had reduced CRR by 0.5 percentage points,
releasing Rs 32,000 crore liquidity. These measures, according to the
central bank, are aimed at addressing "the liquidity deficit (which) is
expected to increase significantly during the second week of March on
account of to advance tax outflows and the usual front-loading of cash
balances by banks with the Reserve Bank". The last date for advance tax
payment in March 15 and is estimated to drain out Rs 60,000 crore from
the system. Commenting on the impact of RBI's decision on interest rate,
Bank of Baroda Chairman and Managing Director M D Mallya said, "I do
not expect any bank to cut either the lending or the deposit rate
immediately." Appreciating RBI's decision to cut CRR ahead of its
scheduled policy review on March 15, industry chamber CII expressed the
hope that central bank would also reduce interest rates to boost
investment and growth. ICICI Bank Managing Director Chanda Kochhar said
"this is expected to bring down the high level of overnight borrowings
by nanks from RBI. This would also ensure continued smooth flow of
credit in the corporate and retail sector".
