Mumbai, Jan 28 (Inditop.com) Reserve Bank of India (RBI) Governor D. Subbarao will conduct the third quarterly review of the monetary policy for this fiscal Friday amid fears that the cash reserve ratio (CRR) may be hiked to suck excess liquidity and tame inflation.
The review also comes against the backdrop of policy makers contemplating the roll back of fiscal stimuli announced since December 2008 to help the Indian economy face one of the sharpest downturns in the global economy in eight decades and the financial crisis.
CRR is the minimum liquid asset commercial banks have to retain against deposits and any hike in this key monetary policy instrument will result in the reduction of money that is available for lending.
A hike of 100 basis points in CRR has the potential to suck out about Rs.40,000 crore from the system.
In anticipation of the hike in CRR, among other factors, the benchmark sensitive index (Sensex) of the Bombay Stock Exchange (BSE) had fallen over 490 points or 2.92 percent Wednesday and 79 points or 0.47 percent the day before.
A survey of economists from the banking and financial services sector by the Federation of Indian Chambers of Commerce and Industry (FICCI) saw the respondents anticipate a 50 basis points cut in CRR, as part of the move to tighten the monetary policy.
“A hike in CRR at this point in time may tone down the inflationary expectations that are building in the economy but would fail to arrest inflation as it is not a monetary phenomenon,” said a statement based on the survey.
