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 RBI Reduces CRR  -  RBI Cuts CRR by 50 bps on 24/01/2012

RBI in its Third Quarter Review of Monetary Policy on 24th January, 2012, announced reduction in the cash reserve ratio (CRR) of scheduled banks by 50 basis points i.e. from existing 6.0 per cent to 5.5 per cent of their net demand and time liabilities (NDTL) effective the fortnight begining January 28, 2012.

As a result of the reduction in the CRR, around Rs 32000 crores of primary liquidity will be injected into the banking system.

 

Why RBI has undertaken the step for Reduction in CRR ?

Since the review undertaken by RBI in October 2011, there have been significant changes in the global scenario.   On one hand, concerns over the sustainability of sovereign debt problem in the euro area have intensified, whereas on the other hand, there are modest signs of improvement in the US.

In the Emerging and Developing Economies (EDEs), growth has been moderating, reflecting the sluggishness in the advanced economies and the impact of earlier monetary tightening. Overall, notwithstanding the signs of recovery in the US, global growth prospects have weakened since the SQR.

Growth in India has also moderated. In particular, investment activity has decelerated sharply, reflecting heightened global uncertainty and domestic fiscal, monetary, political and administrative conditions.

 

Inflation is beginning to moderate as projected, despite the significant depreciation of the rupee. In particular, the higher than expected deceleration in food inflation has provided some relief, even though this was caused largely by a seasonal decline in vegetable prices. Consistent with the Reserve Bank’s earlier projections, inflation is likely to decelerate further to 7 per cent by March 2012.