The Hindu Business Line : CRR cut

The Reserve Bank of India should be congratulated for raising the Cash Reserve Ratio (CRR) by 50 basis points to deal with the problem of excess liquidity fuelling inflationary expectations in the economy. Of course, every time it takes such pre-emptive action it can give the mandatory assurance to the banking system that its goal is to reduce the CRR eventually to 3 per cent or lower.

The increase is the only costless way of dealing with the problem.

For too long, since the Gulf Crisis, have we been fed on the thesis that CRR is a tax on the system and hence a form of financial repression.

Since the system can produce money, CRR should be considered a licence fee for the purpose and hence legitimately levied.

A. Seshan

Hanoi

Letters to the editor and contributions can be sent by e-mail to: bleditor@thehindu.co.in

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