CRR reduction will help ease liquidity problems: India Inc.January 24th, 2012 - 5:13 pm ICT by IANS
New Delhi, Jan 24 (IANS) The Reserve Bank of India’s decision to cut the cash reserve ratio (CRR) by half a percentage point will help ease the liquidity situation and spur investment, India Inc. said Tuesday while welcoming the move.
“This will help ease the liquidity situation in the banking system which has remained tight since November 2011,” said Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII).
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.
“This step will release Rs.320 billion into the system,” RBI Governor D. Subbarao said in a statement.
This is the first time in almost two years the central bank has eased liquidity in the system.
“This gives a clear signal that the RBI has recognised the challenges to growth owing to a weakening demand condition and has started to address that after successive increases in the headline interest rate cumulating to 375 basis points,” said Banerjee.
Welcoming the move, R. V. Kanoria, president, Federation of Indian Chambers of Commerce and Industry (Ficci) said the CRR cut would give a push to investment activities.
“The RBI decision to reduce the CRR from 6 percent to 5.5 percent is a welcome step,” said Kanoria.
However, the Ficci president said a cut in repo rate would have been more effective in giving a push to investment and industry growth.
“Given the uncertain growth prognosis for the current fiscal, a cut in repo rate may have acted as a strong enabling factor in spurring investment activity,” Kanoria said.
The central bank has kept repo and reverse repo rate unchanged as threat of inflationary pressure continued despite the recent moderation.
“While we appreciate and share the same concerns as the RBI, this reinforces our perception that a push to investment activity through policy measures is needed,” said Kanoria.
President of PHD Chamber Sandip Somany said the move would help regain the economic growth momentum.
“The softening of monetary policy will lead to a period of consolidation and stability which will pave the way for a return to 8 percent plus growth in the next financial year,” said Somany.
India’s GDP growth fell to 7.3 percent in the first half of the current financial year as against the budgetary target of around 9 percent.
“A reduction in the CRR is a positive move from the RBI as it will increase the credit supply to different sectors of the economy,” said Ajay Chandra, managing director of Unitech Ltd.
“We continue to be optimistic on the prospects for the real estate sector in 2012 and an increase in the credit supply will benefit our sector which is one of the largest contributors to India’s GDP as well as employment,” Chandra said.
Confederation of Real Estate Developers’ Associations of India (Credai), the apex body of organised real estate developers, also welcomed the move.
“The CRR cut will bring in liquidity. It will help the real estate market which is cash starved,” said Lalit Kumar Jain, national president of Credai.
“However it is important to see the interest rate shall have to come down to facilitate the home seekers to buy homes,” Jain said.
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