In a move to fight against inflation, the Reserve bank of India (RBI) on Monday has kept the interest rate unchanged while cut the cash reserve ratio (CRR) - the portion of deposits banks need to park with RBI on a fortnightly basis - by 25 basis points (bps) to 4.50 percent in its latest monetary review on Monday.
The latest 25 bps (0.25%) cut in CRR will infuse Rs.17,000-crore in banking system which means banks will have now more liquidity to lend. The cut will come into effect from coming fortnight beginning from September 22.
Due to soaring prices in food grains and all essential commodities, RBI has not made any changes in crucial interest rates in Repo Rate, Reverse Repo rate and Basic Statuary Lending Rate (BSLR).
The cut of rate in all three categories will allow banks to lends more which zooms growth rate but also inflation while increasing in these rate would arrest inflation but also hamper growth rate.
The apex bank had raised its key rates 13 times since March 2010 to arrest inflation but despite it's all efforts, the prices of essential food products and commodities remain higher.
Inflation, as measured by the wholesale price index, accelerated to 7.55 per cent in August from 6.87 per cent in July, much above the central bank's comfort zone. Growth, on the other hand, has slowed to 5.5 percent in the April-June quarter, marginally higher than 5.3 per cent in the previous quarter.
The government last week unleashed a wave of reforms, notably raising diesel prices and allowing foreign firms into India's supermarkets.
--With ANI Inputs--
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