The Hindu Business Line : RBI hikes CRR rate, leaves other rates unchanged

MUMBAI: The RBI on Tuesday hiked by half a per cent, the amount of depositors' money commercial banks need to park with the central bank to curb money supply but left other benchmark interest rates unchanged. With inflation hovering within its medium-ter m target of 4-4.5 per cent, the central bank pressed the pause button on any hike in key rates, barring the hike in Cash Reserve Ratio by 0.5 per cent to 7 per cent to suck out excess liquidity.

The RBI maintained the economic growth projection at 8.5 per cent for 2007-08, and said there was no change in the outlook for inflation. The hike in CRR, the second this year, has belied the expectations of the common man for an immediate fall in intere st rates in view of easy liquidity position and low inflation. Inflation stood at 4.41 per cent as of July 14, well under the RBI's medium-term target.

The apex bank, in the quarterly review of monetary policy today, also removed the Rs 3,000 crore cap on daily reverse repo (overnight borrowing) transaction, the window through which it absorbs liquidity in a bid to check volatility in call money rates. This is seen as yet another measure to absorb the excess liquidity in the market, which was driving down call money rates to as low as zero per cent.

As expected, it kept the bank rate unchanged at 6 per cent, repo (short-term lending) rate at 7.75 per cent and reverse repo rate at 6 per cent.

Analysts said the RBI policy was on expected lines with interest rates almost peaking and inflation moderating.

However, the apex bank called for watching over commodity prices, particularly oil and the elevated levels of asset prices and the re-emergence of pricing power among producers. It said these needed to be watched as potential threats to inflation expecta tions.

The policy has also maintained the projected rate of money supply at around 17-17.5 per cent for 2007-08 in consonance with the outlook on growth and inflation.

Consistent with the projections on money supply, the growth in aggregate deposits was placed at around Rs 4,90,000 crore while non-food credit was projected to decelerate to 24-25 per cent in 2007-08 from 29.8 per cent over 2006-07.

"While non-food credit growth has decelerated, the acceleration in money supply and reserve money warrants an appropriate response,'' it said. Early fiscal indicators suggest that Centre's fiscal deficit is evolving as budgeted and is on course to meet t he FRBM targets. However, net capital flows have been very strong so far in the current fiscal. - PTI

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