CRR cut will ease liquidity problems, says Pranab

January 24th, 2012 - 7:57 pm ICT by IANS  

Pranab Mukherjee New Delhi, Jan 24 (IANS) The Reserve Bank of India’s (RBI) decision to cut the cash reserve ratio (CRR) by half a percentage point will help ease the liquidity situation in the market, Finance Minister Pranab Mukherjee said Tuesday.

“The announcement should help address the money market liquidity situation, which has tightened in the past two-three months,” Mukherjee said.

The RBI in its third quarter review of the monetary policy for the current fiscal Tuesday cut the CRR, the amount against deposits which commercial banks have to keep as liquid assets such as cash, by 50 basis points to 5.5 percent, effective from Jan 28.

RBI Governor D. Subbarao said the move would release Rs.32,000 crore into the system.

This is the first time in almost two years the central bank has eased liquidity in the system.

However, the central bank has kept repo and reverse repo rates unchanged as the threat of inflationary pressures continued despite recent moderation.

“There is a necessity to ensure that inflationary pressures don’t go up. Growth outlook shows a sign of weakening as a result of global and some domestic factors,” the finance minister told reporters here.

Economic Affairs Secretary R. Gopalan said the CRR cut will help boost growth by increasing liquidity in the market.

“CRR cut ensures that fair amount of money is available, the cost of fund is reduced. All these things are good to create a growth enhancing impression,” said Gopalan.

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