Reserve Bank of India hopes to contain inflation

PATNA - Reserve Bank of India Governor Duvvuri Subbarao has said measures taken by the central bank to check inflation will prove fruitful in the long term.

“We have raised the CRR (Cash Reserve Ratio) by 75 basis point in order to absorb the liquidity of 36,000 crore and we are hoping that will go a long a way towards managing inflation expectations,” Subbarao told reporters here on Thursday.

The Reserve Bank of India raised banks’ Cash Reserve Ratio (CRR) by 75 basis points at its policy review on Jan. 29. The first phase of the hike-of 50 basis points-is estimated to drain 240 billion rupees from banks.

As per Thursday’s reverse repo deployment, there is a surplus of 620.20 billion rupees in the system, way below one trillion rupees-plus seen in the last fortnight. The first CRR hike absorbed 240 billion rupees, according to the central bank.

The next round of increase in CRR will kick in on February 27.

Rates may rise in mid-March when companies make tax payments, estimated to be around 400-500 billion rupees, which will come back to the system only with a lag of 10-15 days.

The central bank is expected to tighten monetary policy as inflation concerns increase and with the economy gradually moving to high growth path.

Traders said some banks continued to arbitrage between the collateralised borrowing rate, and central bank’s reverse repo window at 3.25 percent.

Subbarao also said that he is in consultation with the government to tackle the problem of fake currency in the market.

“We are in active consultation with the government to attack the problem of fake currency,” he added. (ANI)