Experts welcome CRR cut; say timing is just right

The Reserve Bank's move to cut the cash reserve ratio has come just at the right time and will help improve the precarious liquidity situation in the economy, say experts.
  • Language
  • App
  • Subscriptions
  • Specials
  • Sign-In
  • Register
GeStepAhead master your money SME Special
moneycontrol.com

Home » News » Economy

Mar 09, 2012, 08.59 PM | Source: Moneycontrol.com

Experts welcome CRR cut; say timing is 'just right'

The Reserve Bank's move to cut the cash reserve ratio has come just at the right time and will help improve the precarious liquidity situation in the economy, say experts.

Like this story, share it with millions of investors on M3

Experts welcome CRR cut; say timing is just right

The Reserve Bank's move to cut the cash reserve ratio has come just at the right time and will help improve the precarious liquidity situation in the economy, say experts.

Post Your Comments

Share Cancel

Moneycontrol Bureau

The Reserve Bank’s move to cut the cash reserve ratio has come just at the right time and will help improve the precarious liquidity situation in the economy, say experts.

“We were all expecting a CRR cut in the range of 50 basis points, so this 75 basis point cut is a pleasant surprise,” said managing director of Bank of Baroda, MD Mallya. He further adds that the bank’s liquidity position will improve by Rs 2,000 crore plus once the cut is effective.

According to Chanda Kochhar of ICICI Bank, this proactive step by the central bank will bring down the high level or overnight borrowings by banks from the RBI.

The rate cut, which is effective from March 10, will infuse Rs 48,000 crore into the system and will ensure smooth credit flow to productive sectors. However, despite this cut, the liquidity deficit situation is still above the RBI’s comfort level.

While Abheek Baruah of HDFC Bank was expecting a cut before the policy, what surprised him was the 75 bps cut instead of the consensus estimate of 50. “However, considering the RBI has sucked out more than Rs 100 thousand crore via forex intervention, the 75 basis point cut to offset that makes sense,” he said.

The fact that the cut has come in before the advance tax outflows have to be completed, which is by March 15, will help alleviate some pressure from the banking sector.

Also read: How will the CRR cut affect bond markets

While some may say this move is in connection to tapering inflation, Samiran Chakraborthy of Standard Chartered Bank believes that the RBI’s move was more of a liquidity measure. “This is against its monetary policy stance, which was one of softening interest rates, so it is not connected with monetary policy stance or inflation,” he said.

Sonal Verma, economist at Nomura Financial agrees with Chakraborthy, adding that this move is a sign that the central bank’s liquidity injection measures are coming to an end.

Will March 15 credit policy be a non-event?

With the CRR cut delivered ahead of the credit policy on March 15, S Raman of Canara Bank says the central bank is now in a bit of dilemma. “If indeed the inflation is under control, then I would think that the RBI would venture to have a reduction over 25 basis points,” he said. However, Chakraborthy is from the camp that says the RBI will not take any major decisions so soon.

Therefore, it remains to see whether this surprise CRR cut from the RBI will effectively make the credit policy a non-event.

Anisha Mappat
anisha.mappat@network18online.com

Ads by Google

Buy, Hold, Sell ? Hear it first on M3
Experts welcome CRR cut; say timing is just right

See all

Get started using your favorite social network

or

Login using moneycontrol ID

Username
Password

Need help logging in? Reset password.

Don´t have an account? Sign Up

Get started using your favorite social network

or

Simply sign up using this short form

* mandatory

UserName*

Username should be atleast 4 character

Password*

Password should be 8 or more characters,
atleast 1 number, 1 symbol & 1 upper case letter

Alert

Your Password should contain
  • 8 or more characters
  • At least 1 number
  • At least 1 symbol
  • At least 1 upper case letter
Confirm Password*
Email
Already have an account? Login