RBI to consider more CRR cuts if cash deficit persistent

The Reserve Bank of India will consider easing banks' cash reserve ratio (CRR) further if liquidity deficit persists for more than a few weeks at a stretch, Deputy Governor Subir Gokarn said on Tuesday.

Earlier in the day, the RBI cut the CRR, or the share of deposit banks must maintain with the central bank in cash, by 25 basis points to 4.25 percent.

The CRR cut would inject Rs 17,500 crore of primary liquidity into the banking system.

"The consideration is in terms of persistence versus transitoriness of liquidity shortages," Gokarn told reporters from wire agencies.

"So, in situations where the shortage is likely to be short-lived, for maybe a few weeks, we will obviously opt for open market operations. It's much quicker to do, it can respond to immediate pressures," he said.

Where the liquidity shortage is likely to persist somewhat longer, requiring structural adjustment, the CRR is the more effective instrument, Gokarn added.