RBI cuts CRR to infuse Rs 48,000 cr

The Reserve Bank in a surprise move on Friday announced 0.75 percentage points cut in its key policy ratio to pump Rs 48,000 crore in the economy, but the move may not lead to immediate reduction in lending rates.

Without waiting for the scheduled policy review due next week, RBI reduced the cash reserve ratio (CRR)-the portion of deposits banks require to keep with the central bank from 5.5 per cent to 4.75 per cent with effect from tomorrow with a view to ease the liquidity situation.
With this move, the Reserve Bank of India (RBI) would be injecting around Rs 80,000 crore into the economy in less than 40 days.
The central bank in January had reduced CRR by 0.5 percentage points, releasing Rs 32,000 crore liquidity.
These measures, according to the central bank, are aimed at addressing "the liquidity deficit (which) is expected to increase significantly during the second week of March on account of to advance tax outflows and the usual front-loading of cash balances by banks with the Reserve Bank".
The last date for advance tax payment in March 15 and is estimated to drain out Rs 60,000 crore from the system.
Commenting on the impact of RBI's decision on interest rate, Bank of Baroda Chairman and Managing Director M D Mallya said, "I do not expect any bank to cut either the lending or the deposit rate immediately."
Appreciating RBI's decision to cut CRR ahead of its scheduled policy review on March 15, industry chamber CII expressed the hope that central bank would also reduce interest rates to boost investment and growth.
ICICI Bank Managing Director Chanda Kochhar said "this is expected to bring down the high level of overnight borrowings by nanks from RBI. This would also ensure continued smooth flow of credit in the corporate and retail sector".