The Hindu Business Line : ‘CRR hike in line with RBI strategy’

Thiruvananthapuram, April 18 The timing of the hike in the cash reserve ratio is in line with the time-tested strategy of the Reserve Bank of India to stir up the markets when they least expect it, according to Mr Amitabh Chakraborty, President, Equity, Religare Securities.

The immediate casualty is going to be growth at the cost of feverish inflation targeting, Mr Chakraborty told Business Line. The two-stage implementation of the CRR hike would suck out Rs 18,500 crore from the system.

But the Governor could not be faulted since he is seemingly doing the bidding of the Finance Minister who went public saying that growth could be sacrificed to rein in runaway inflation.

Mr Chakraborty picked holes in the Reserve Bank strategy saying that inflationary expectations would in any case have moderated given that winter crops had started moving into the market. This would take care of the supply side dynamics, which was at the core of the inflationary spiral.

Reining in

According to Mr Ananda Bhoumik, Senior Director, Fitch Ratings, the CRR hike was along expected lines. There may have been initial reactions of dismay at the choice of timing and extent of the hike, but the RBI had a deeper message to convey.

And this message is that the regulator would need to do something to rein in inflation and bring it within its comfort zone of 4 to 5 per cent. This narrow corridor is not achieved overnight; at least this is not what it aims to achieve through the announced hike. The central bank has a longer time play in its mind, especially given that the inflationary spiral in not an India-specific story.

Aggressive monetary tightening is not the only tool for fighting inflation, but it still remains an important tool, Mr Bhoumik told Business Line. It is quite possible that the central bank would have done what it has without the prodding from the Finance Minister. It has a view of its own, even if some quarters might want to dub it as stifling growth in the country.

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