Mumbai: The Indian central bank (RBI) has annihilated the anticipations of interest rates alleviation by raising CRR, the sum of money banks must hold in cash, by 0.5 percent (now 7.5%) to drain liquidity regardless of inflation at a five-year low.
But the RBI do not make any changes in the key lending and borrowing rates (repo and reverse repo) and bank rate in the mid-term appraisal of the monetary plan.
Cash Reserve Ratio (CRR) is the amount of cash that is demanded by the banks to park with RBI that does not pay up any interest on such depositions.
While launching the busy season monetary plan, Y V Reddy, RBI Governor sent out firm indications, which the apex bank’s hawkish position would go on in order to make sure price constancy, credit class and orderly conditions in the financial market.
Flush with funds, commercial banks have been abbreviating depository rates to cut funding costs and cutting down rates on fresh retail loans to perk up credit offtake. This had brought up anticipations of interest rates descending further, even though bankers asserted there would be no alteration in the rate system.
Chanda Kochhar, ICICI Joint Managing Director stated that the recent increase in CRR rate will calm down liquidity and "further hike in interest rates is unlikely."
The RBI do not alter the economic growth projection for the existing fiscal 2007-08. It remained unchanged at 8.5 percent and kept on focusing on keeping inflation rate low.
While inflation rate has fallen to 3.07%, RBI anticipated the rate to be around 5 per cent by end of 2007-08. Moving ahead, it concluded to hold inflation prospects in the range of 4-4.5% with the intention that an inflation rate of about 3% turns a medium term objective.