The RBI announced a hike in its cash reserve ratio (CRR) by 50 basis points in its 1st quarterly review of the monetary policy. Effective from August 4, the CRR now stands at 7 per cent. Keeping in tune with the first quarter credit policy, RBI chose to keep its key bank rate, repo rate and reverse repo rate unchanged at 6 per cent, 7.75 per cent and 6 per cent respectively.
The central bank’s decision is seen as a reiteration of its focus on maintaining
price stability and curtailing inflation. However, it has lifted the cap
on daily reverse repo of Rs 3 000 crore, paving the way for more foreign
cash inflow.
Reverse repo means the amount that banks can lend to RBI.It
attracts a 6 per cent return from the central bank. The lift shall be
effective from August 6. However, the central bank has the rights of reinstating
the ceiling when it deems fit.
While presenting the report on macroeconomic
and monetary development, RBI stated that the current cash supply in the
market needs to be monitored for potential inflation during the current
fiscal. It aims to maintain and check the inflation to 5 per cent for the
year 2007-08.
The current inflation rate is hovering between 4 and 4.5 per
cent. The hike however is not expected to affect the lending rates of
the banks as perceived earlier. The floating as well as fixed rates of interest
on most loans shall remain unchanged.
To the reprieve of borrowers, banks
have further indicated that price stability shall be maintained and rates
if not lowered, shall not be hiked either.
