Published on Wed, Feb 14, 2007 at 08:30 | Source : Moneycontrol.com
Updated at Wed, Feb 14, 2007 at 10:04
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RBI again raises CRR to rein in inflation
In a rather swift bid to stay on top of runaway prices, the RBI on Tuesday marked up the Cash Reserve Ratio by 50 basis points to 6 per cent and impound for free about Rs 14,000 crore of bank funds.
In a rather swift bid to stay on top of runaway prices, the RBI on Tuesday marked up the Cash Reserve Ratio by 50 basis points to 6 per cent and impound for free about Rs 14,000 crore of bank funds.
The hike in CRR (the percentage of bank deposits locked up for free with the RBI), effective in two phases, will kick in on February 17; the second phase starts on March 3.
It was on December 8, 2006, that the RBI had lifted CRR by 50 basis points to 5.5 per cent, absorbing around Rs 13,500 crore of bank deposits. On January 31, the RBI had increased the repo rate by 25 basis points to 7.5 per cent.
There may be no guesses on banks following up with a mark up in deposit and lending rates though none is sure of the impact on the economic growth running at over 9 per cent.
Yields (prices will drop) are certain to go up in the government and corporate debt markets to make borrowings, across sectors, dear. Over the past few days, financial markets had been expecting a rise in CRR, as it does not cost RBI anything with the held up bank funds not earning interest incomes for banks. Indeed, the second CRR hike could chew off a portion of bank profits in the current fiscal.
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There may be no guesses on banks following up with a mark up in deposit and lending rates though none is sure of the impact on the economic growth running at over 9 per cent. 
