The RBI on Tuesday hiked the cash reserve ratio (CRR) by 25 basis points to suck out excess liquidity, a move aimed at tempering demand for loans and easing inflation from three-year highs.
A cash reserve ratio (CRR) is the percentage of bank reserves to deposits and notes.
Although it left key short-term lending and borrowing rates (repo and reverse repo) and Bank Rate unchanged, it hiked Cash Reserve Ratio for the second time in a fortnight to 8.25 per cent. Today's increase would suck out over Rs 9,000 crore excess funds from the banking system, while the 50 basis points increase in CRR announced on April 17 was aimed at squeezing out Rs 18,500 crore from the system. The move is aimed at fighting inflation, which is ruling at an intolerable 7.33 per cent. The high rate has prompted the RBI to revise its inflation comfort band from the earlier 5 per cent to 5.5 per cent.
