|
The Reserve Bank of India has hiked the Cash Reserve Ratio by 0.5%, from 7.5% to 8%. The hike will be effective from April 26 and May 10, with 0.25% increase in each phase. The main reason for the increase in CRR is cited as inflation which has risen to over seven percent, though it has come down to 7.14% in the first week of this fiscal year after it rose to about 7.41% last week.
Even though the CRR has been increased to control inflation, experts believe that the ever increasing inflation can be controlled by increasing the supply and not by hiking the CRR. Instead of hiking the Cash Reserve Ratio, the RBI could have increased the surplus liquidity through instruments like Monetary Stabilization Scheme bonds.
According to Oriental Bank of Commerce executive director Allen CA Pereira, RBI's decision to increase the CRR could lead to increase in lending rates for sectors like home loan and personal loan. Also, this could lead to a change in money supply which would ultimately force the banks to raise their lending rates as well as deposit rates.
With this increase, the Reserve Bank of India hopes to imbibe about Rs.18,500 crore (Rs.185 billion) from the system.
