The Hindu : Business : CRR cut to release Rs. 20,000 cr.

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CRR cut to release Rs. 20,000 cr.

Central banks worldwide have been taking steps to infuse liquidity

MUMBAI: Moving to ease pressure on interest rates, the Reserve Bank of India on Monday cut the Cash Reserve Ratio (CRR) by half-a-percentage point and joined central banks worldwide that are injecting liquidity into their system.

(The CRR is the rate of mandatory deposits that commercial banks need to park with the central bank.)

The Cash Reserve Ratio will fall to 8.5 per cent from October 11 and the move would release about Rs. 20,000 crore into the financial system, the RBI said in a statement. This is the first time since June 2003 that the RBI has reduced the CRR. The cut then was 25 basis points. The announcement comes three weeks ahead of a scheduled half-yearly review of the credit policy.

On a review of the current liquidity situation in the context of global and domestic developments, it has been decided to reduce the CRR by 50 basis points to 8.5 per cent of net demand and time liabilities (NDTL), the RBI said.

Worldwide, central banks have been taking steps to infuse liquidity in the banking system to prevent a credit crunch and panic withdrawals.

“Central banks across the world have stepped up their liquidity operations, including coordinated actions, and some have banned or limited short selling of financial stocks,” the RBI added.

According to Oriental Bank of Commerce Executive Director H. Ratnakara Hegde, the move would ease liquidity pressure from the banking system and the credit flow would ease. It would also help in easing pressure on interest rates in the medium term. But immediately there would not be any decline in interest rates, he said. — PTI

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