The Hindu Business Line : RBI unlikely to cut CRR

New Delhi, Oct. 1 The Finance Ministry does not expect the Reserve Bank of India to effect a cut in cash reserve ratio (CRR) in its mid-term monetary policy review slated for October 24. Policy rates are also likely to remain untouched, sources in the Ministry said.

The main reason attributed for the likely status quo stance on the CRR front is the Government’s intent to disburse Rs 25,000 crore to the banks towards the first tranche of compensation for the agri-debt waiver scheme implemented by them. The pressure on liquidity, faced by banks, is expected to ease after this disbursement.

“By the end of October or early November, the first tranche of Rs 25,000 crore would be released to banks towards their outgo on farm debt waiver, which is more than about 1 per cent CRR cut. There is no scope for CRR cut,” sources said.

The RBI last raised CRR by 25 basis points to 9 per cent in July. In this fiscal, the RBI has hiked CRR four times while repo rate has been hiked thrice to tackle inflation. Since April 2008, CRR was raised by 1.5 per cent while repo rate was raised by 1.25 per cent.

Sources also said that the Finance Ministry sees a pause in the rate tightening cycle and that short term lending and borrowing rates is likely to remain unchanged. While repo rate currently stood at 9 per cent, reverse repo rate is pegged at 6 per cent.

Meanwhile, indications are that the current US financial market turmoil may prompt Indian policy makers to take a cautious approach towards ushering in banking reforms and further opening up of the financial sector.

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