RBI hikes CRR by 75 bps to 5.75% in two stages

The Reserve Bank of India (RBI) has hiked its cash reserve ratio by 75 bps to 5.75% as against 5% at its credit policy meet today.
The move will be implemented in two stages. The first 50 bps hike will come into effect on February 13 while the next 25 bps hike will be effective February 27. A CNBC-TV18 poll had forecasted a 50 bps CRR hike. The move will result in a mop-up of Rs 36,000 crore by February end.

The central bank has left unchanged the reverse repo and repo rate at 3.25% and 4.75% respectively. It says the FY11 growth pace of 7.5% will continue amd has upped its March-end inflation forecast to 8.5%. The apex bank has also lowered its bank loan and deposit growth expectation to 15% and 16% respectively.

Bankers say that even if the CRR is raised, they have no leeway to raise rates because nobody is demanding money much these days.

Expected Outcomes
  • Reduction in excess liquidity will help anchor inflationary expectations.
  • The recovery process will be supported without compromising price stability.
  • The calibrated exit will align policy instruments with the current and evolving state of the economy.

Source : MoneyControl Flash News

This is in line with my expectations shared with you all on 24th Jan 2010. Expect the market to react today by going up ! Let me see.



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