New Delhi: Acting cautiously, the Reserve Bank today slashed the Cash Reserve Ratio (CRR) by 0.25 percent – the percentage of deposits banks keep with central bank – but refrained from reducing lending rates in view of high inflation
The reverse repo rate under the LAF stands adjusted to 6.75 percent, and the marginal standing facility (MSF) rate and the Bank Rate to 8.75 percent with immediate effect. The RBI is next scheduled to meet on February 3.
The RBI has been under pressure from government and business leaders to reduce rates to increase lending and help kickstart the economy. But RBI governor Raghuram Rajan has insisted his priority is bringing inflation under control, although expectations had been high for a cut at the February 3 meeting.
The RBI’s move comes after the Wholesale Price Index (WPI) based inflation moved up marginally in December to 0.11 percent from zero level in November, reversing the six month declining trend.
The slight increase in inflation rate was due to spurt in ‘food items’ basket. Food inflation in December moved to 5-month high of 5.2 percent, as per the government data. While inflation in pulses, vegetables and fruits was higher in December over the previous month, it eased in wheat, milk and other protein rich items like egg, meat and fish.
After announcing the cuts, the RBI said that government’s reform efforts are in the right path but added that immediate implementation and continued measures are needed to bring the economy back to growth path.
Bureau Report
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