Mumbai, Sep 17: Taking a cautious stance, the Reserve Bank of India today cut CRR by 0.25 per cent but refrained from reducing lending rates in view of high inflation.
The cut in cash reserve ratio will inject about Rs 17,000 crore liquidity into the banking system.
The liquidity infusion, RBI said, would ensure adequate flow of credit to productive sectors of the economy.
Following the cut, CRR will come down to 4.5 per cent while the repo rate, at which the central bank lends to the banks, would remain unchanged at 8 per cent.
The reverse repo, at which it absorbs excess liquidity through borrowings from banks, remains at 7 per cent.
“As inflationary tendencies have persisted, the primary focus of monetary policy remains the containment of inflation and anchoring of inflation expectations,” RBI Governor D Subbarao said while announcing the mid-quarter review of the monetary policy.
The RBI said the CRR cut would be effective from September 22.
The moderation in CRR rate is likely to goad banks to bring down their lending rates, which will improve investments and help growth.
Commenting on RBI's action, State Bank of India (SBI) Chairman Pratip Chaudhuri said the bank will review its rates in the light of policy action. The asset liability committee of the bank is expected to meet soon to take a view on rate revision.
“It is a very positive move, as a mid-term policy it is very significant. I think the RBI has given a clear signal that they are willing to respond and that they have taken note of the signs of deceleration in economy,” Mr Chaudhuri said.
Noting that growth continues to be weak amidst a negative investment climate, the RBI policy review said that the recent reform measures undertaken by the government have started to reverse sentiments.
Among other decisions, the government hiked the regulated diesel prices by over Rs 5 per litre, which satisfies the RBI's long standing demand for containing fiscal deficit while also liberalising foreign holding norms in a string of sectors.
RBI said the measures on diesel prices and LPG usage will hurt inflation in the short term, but the steps are a “significant achievement” as they will strengthen macroeconomic fundamentals.
