Reserve Bank of India hikes cash ratio for banks

The Reserve Bank of India (RBI) on Friday hiked the cash reserve ratio (CRR) for commercial banks by an unexpected 75 basis points, in a clear bid to curb inflationary expectations in the economy.

All other policy rates were left unchanged.

The CRR, presently at five per cent, will be hiked in two stages - 50 basis points from February 13 and another 25 basis from February 27, RBI Governor D Subbarao told the chief executives of commercial banks here.

"As a result of this increase in the CRR, about Rs 36,000 crore of excess liquidity will be absorbed from the system," Subbarao added, as he presented the third quarterly update of the central bank's monetary policy for this fiscal.

Cash reserve ratio is the minimum liquid assets banks have to retain against deposits or park with the central bank in the form of government securities.

Subbarao said the cut in excess liquidity will help anchor inflationary expectations and that the recovery process of the economy will be supported without compromising on price stability.