Reserve Bank of India Governor Duvvuri Subbarao announced that steps taken by the central banking institution to control inflation will yield positive results in the long term.

Mr. Subbarao said, "We have raised the CRR (Cash Reserve Ratio) by 75 basis point in order to absorb the liquidity of 36,000 crore and we are hoping that will go a long a way towards managing inflation expectations."

RBI has lifted banks' CRR by 75 basis points at its policy appraisal on January 29. The initial stage of the increase, of 50 bps, is said to drain Rs 240 billion from banking institutions.

According to Thursday's reverse repo deployment, there is a surplus of Rs 620.20 billion in the system, way below one trillion rupees-plus seen during the last two weeks.

The first Cash Reserve Ratio increase soaked up Rs 240 billion, the central bank said.

Another round of CRR hike will kick in on February 27.

Rates may climb in mid-March when companies pay taxes, projected to be around Rs 400-500 billion, which will return to the system only with a delay of 10-15 days.

RBI is likely to squeeze monetary plan as inflation fears swell and with the economic system gradually moving to high growth path.

Traders stated that a few banking institutions continued to arbitrage between the collateralized borrowing rate, and central bank's reverse repo window at 3.25%.

Subbarao added that he is making discussions with the administration to deal with the problem of fake currency in the market. (With Input from Agencies)