The Reserve Bank of India raised Cash Reserve Ratio (CRR) by 75 basic points, while the market expectation had been 50 bps. The central bank has left the interest rates untouched. With this raise, banks need to keep 5.75% of their deposits with the RBI, as against the previous 5%.
The proposed CRR hike will be implemented in two phases – the first phase will involve a 50 bps hike effective from 13 February and the second, 25 bps w.e.f. 27 February. The combined effect of the two phases of CRR hike will squeeze out excess liquidity in the system to the tune of Rs. 36,000 crore.
The highlight of the policy review is the decision to leave both repo rate and reverse repo rate undisturbed at 4.75% and 3.25% respectively for the time being. The project GDP growth for the current fiscal also witnessed a hike from 6% to 7.5%. Inflation estimate for March 2010 too saw an increase from 6.5% to 8.5%.
Prior to review, the consensus had been a CRR hike of 50 bps to contain the spiraling inflation. During October review, RBI had hiked the statutory liquidity ratio (SLR) by 100 bps to 25%, which means the banks have to park 25% of their deposits in government securities.
RBI Deputy Governor Subir Gokarn said that the central bank is in the alignment process to adjust to the changes in the economy.
The stock market’s response to RBI announcement was subdued, even as bank and realty stocks posted gains. The top gainers in Sensex are ICICI Bank (5.29%), BHEL (3.10%), SBI (2.72%), DLF (2.54%) and HDFC Bank (2.25%). Sensex closed at 16357.96 points, up 51.09 points (0.30%).
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