India's Largest Database on New Projects
December
8, 2006: In a significant move to curb overheating of the economy, to check
inflationary expectations and suck out excess liquidity from the system, the
Reserve Bank of India (RBI) announced a 50 basis point hike in the
cash reserve ratio (CRR) maintained by banks to 5.5%, to be undertaken in two
stages. The move will absorb Rs.13,500 crore from the system.
As a first step, the CRR will be raised from the present 5% to 5.25% effective from the fortnight beginning December 23, 2006. The second 25 basis point hike will be effective from the fortnight beginning January 6, 2007. The hike in CRR comes close on the heels of inflation reaching the 5.45% mark, as announced, cruising the upper end of the RBI expectation of 5-5.5%.
In October 2006, RBI had hiked the reporate, the rate at which RBI lends to banks, by 25 basis points to 7.25% in a signal that liquidity management was the need of the hour for banks.
In the
statement, the central bank pointed to its observations made during the mid-term
review of its annual policy in October 2006, wherein it had said containing inflation
expectations in the current environment and consolidating gains achieved so far
with regard to stability would warrant appropriate, immediate measures and
willingness to take recourse to all possible measures in response to evolving
circumstances promptly. Towards this objective, the monetary policy stance and measures will need to be
in a process of careful rebalancing and timely adjustment.
Source:
Financial Express