Hikes ICRR to 10%

The Reserve Bank on Thursday raised the cash reserve ratio in an incremental 10 per cent in proportion to banks’ liquidity, a move that will suck out over Rs 1 lakh crore from the system. RBI’s hawkish stance was also reinforced by the unexpected announcement of reducing the cash in the banking system by raising the incremental cash reserve ratio (ICRR) to 10 per cent on the incremental NDTL (net demand and time liabilities) over the last three months. Post MPC’s decision, the effective CRR is expected to be 14.5 per cent as the current CRR is 4.5 per cent. The move is expected to suck out about Rs1 lakh crore from the banking system, RBI Governor said, adding that this liquidity tightening measure will not impact credit needs of productive sectors. “The job on inflation is still not done,” Das said

This will help in absorbing a large part of the excess liquidity created through the return of the Rs2,000 notes and the large dividend to the Government from RBI.