The Reserve Bank of India has proclaimed a sudden 50-basis-point raise in the banks' reserve requirements, in order to bring the inflationary conditions prevailing in the country under control from near three-year peaks. The experts in India have not ruled out the possibility of further measures at a soon-to-be-held policy review.

 

After the markets had closed down, the Central Bank of India announced that it would up the cash reserve ratio (CRR), the amount of money banks are required to keep with them, to eight (8) percent. This will be the highest in almost seven (7) years. This measure comes on the heels of an array of duty cuts and export bans ordered by the Indian government recently to lighten price pressures.

 

Due to the inflation, the policymakers in India are anxious about facing voters at state and general elections due this year and next. Abheek Barua, who is the chief economist at HDFC Bank, said that this RBI measure will work less visibly than fiscal measures. He further opined that it will bring down inflation below seven (7) per cent in a hurry. The RBI's next policy review is scheduled for 29 April.