Mumbai: The Reserve Bank on Thursday hiked the ratio of mandatory deposits that banks need to maintain with it by 50 basis points to suck out about Rs 18,500 crore from the system, complementing efforts of the Government to fight price rise.
The decision of the central bank to raise the Cash Reserve Ratio (CRR) from 7.5 per cent to 8 per cent in two phases comes within 24 hours of Finance Minister P Chidambaram assuring the Lok Sabha that RBI would assess the monetary situation and take appropriate action to curb inflation.
Considering the gravity of the price situation, which has pushed inflation to a three-year high of 7.14 per cent, the RBI has tinkered with the monetary policy even ahead of the April 29 announcement of its annual credit policy for 2008-09.
"In the light of the current macro-economic, monetary and anticipated liquidity conditions, and with a view to containing inflation expectations, it is essential to take appropriate action on an urgent basis," RBI said in a statement.
"On a review of current liquidity situation, it is considered desirable to increase the CRR of the scheduled commercial banks by 50 basis points to eight per cent in two stages," it added.
The hike in CRR may lead to tightening of money supply, forcing banks to raise lending and deposit rates. IBA Chief Executive H N Sinor said the hike was expected to rein in inflation, but he did not see banks immediately increasing interest rates as they would wait to see the outcome of the credit policy.
The RBI's move, according to Oriental Bank of Commerce Executive Director Allen C A Pereira, could lead to increase in lending rates for sectors like personal loan, home loan for purchase of second house.
It would be effort of the bank to ensure that credit goes to deserving and the productive sector and cut down the exposure in the unproductive areas, Pereira told PTI.
Some of the banks could increase Prime Lending Rate depending on the cost of resources to maintain net interest margin, he said.
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