Wednesday, July 30, 2008

India’s RBI raised CRR, repo rate

by Jenny Hodge

India’s central bank, the Reserve Bank of India (RBI) on Tuesday increased the short-term indicative rate (REPO rate) by 50 basis points and, with effect from August 30, 2008, the Cash Reserve Ratio (CRR) by 25 basis points.

The increase in CRR is expected to shore up another Rs. 90 billion ($2.25 billion) from the banking system.

The CRR impounds funds available with the banks. The REPO rate is the rate at which banks are allowed to access funds from the RBI for liquidity adjustment.

The increase in the CRR and the REPO rate is a signal to the banks that credit growth must be moderated, having regard to the need to moderate aggregate demand. If requests for loans are carefully appraised and credit is allocated prudently, it is possible for the banks to ensure that adequate credit is available to the productive sectors.

Indian government expects that the measures taken by RBI today, in continuation of the measures already taken over the last two months, will help in moderating and containing inflation.

 

 

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