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Reserve Bank of India hikes cash reserve ratio (CRR) by 50 bps to 8%

April 17, 2008:
Year-on-year WPI inflation, which was 3.83 per cent on January 12, 2008, i.e., at the time of the announcement of Third Quarter Review, increased to 7.41 per cent on March 29, 2008 and remained at 7.14 per cent as on April 5, 2008.

In the light of the current macroeconomic, monetary and anticipated liquidity conditions, and with a view to containing inflation expectations, Reserve Bank of India has decided to take appropriate action on an urgent basis.

On a review of current liquidity situation, it is considered desirable to increase the cash reserve ratio (CRR) of the scheduled commercial banks, regional rural banks (RRBs), scheduled state co-operative banks and scheduled primary (urban) co-operative banks by 50 basis points to 8.0 per cent in two stages, effective from specified fortnights as indicated below:

April 26, 2008    7.75
May 10, 2008    8.00

As a result of the above increase in CRR on liabilities of the banking system, an amount of about Rs.18,500 crore of resources of banks would be absorbed.

It may be recalled that in the Third Quarter Review of the Annual Statement of the Monetary Policy for the year 2007-08, the stance of monetary policy was set out. The review had stated that over the period ahead, liquidity management will continue to assume priority in the conduct of monetary policy. It was further stated that the liquidity conditions are being shaped by several underlying factors and their developments have implications for liquidity management going forward and warrant appropriate and timely action.

The liquidity adjustment facility (LAF) had been in an injection mode persistently during the second half of March 2008. Subsequently, there was a large turnaround and, an average amount of Rs.40,088 crore was absorbed through the LAF during April 3-17, 2008 as against average daily injection of liquidity of Rs. 27,385 crore during March 17-31, 2008.

NOTE: RBI has raised the cash reserve ratio by 300 basis points since December 2006 8.00    10-05-2008
7.75    26-04-2008
7.50    10-11-2007
7.00    04-08-2007
6.50    28-04-2007
6.25    14-04-2007
6.00    03-03-2007
5.75    17-02-2007
5.50    08-12-2006

The Annual Policy Statement for the year 2008-09 will be announced on April 29, 2008...Click Here

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