- The Reserve Bank of India (RBI) on Friday reduced the Cash Reserve Ratio (CRR) by 75 basis points from 5.5 per cent to 4.75 per cent with effect from March 10.
- This reduction will inject around Rs.48,000 crore of primary liquidity into the banking system to ensure smooth flow of credit to productive sectors of the economy
- CRR is the percentage of deposits that commercial banks must keep with the central bank.
- The markets were expecting a reduction in CRR as the banking system was experiencing a liquidity tightness in the recent days. However, the reduction in CRR at this point surprised markets as the RBI was expected to provide its assessment of the macroeconomic situation in its fourth Mid-Quarter Review on March 15. Moreover, this cut was sharper than expected.
- Earlier, in its third quarter review in January last, the RBI reduced the CRR by 50 basis points from 6 per cent injecting a liquidity of Rs.31,500 crore into the banking system to mitigate the tight liquidity conditions, which was the first move in the CRR since it was increased to 6 per cent in April 2010.
- The RBI's action now is apart of its continued efforts to provide liquidity through open market operations (OMOs), injecting primary liquidity of over Rs.1,245,00 crore this financial year so far, of which Rs.52,800 crore was injected after the CRR cut in the third quarter review.
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