RBI Policy: CRR hike can suck out Rs 83,711 crore liquidity, says Governor Das

File image of RBI Governor Shaktikanta Das (Image: Reuters)

The Reserve Bank of India (RBI) Governor Shaktikanta Das in a surprise move said on May 4 that the monetary policy committee (MPC) voted unanimously to increase the policy repo rate by 40 basis points (bps) to 4.40 percent with immediate effect.

The central bank also increased the Cash Reserve Ratio (CRR) by 50 basis points to 4.50 percent.  "CRR hike can suck out liquidity to the tune of Rs 83,711.55 crore from the banking sector," Das said.

CRR is a percentage of a bank's total deposits that it needs to maintain as liquid cash. The CRR hike will be effective from May 21.

One basis point is one-hundredth of a percentage point.

The unscheduled statement comes on the day the Federal Reserve is to share the outcome of its policy meeting in which it is expected to raise rates by 50 basis points.

This is the first-rate hike since August 2018 and the first instance of the MPC making an unscheduled increase in the repo rate (the rate at which banks borrow from the RBI). The MPC unanimously voted for a rate hike while maintaining the accommodative stance.

While the inflation has remained above the targetted 6 per cent since January, Das said the inflation print in April is also likely to be high. The retail inflation print for March stood at 6.9 per cent.

The governor said the MPC decision reversed the May 2020 interest rate cut by an equal amount. The central bank had last revised its policy repo rate or the short-term lending rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting the interest rate to a historic low of 4 per cent.