Mumbai, May 4 (Agency) In continuation of its efforts to normalise liquidity in the system and to bring the elevated inflation down, the Reserve Bank of India on Wednesday increased the cash reserve ratio by 50 basis points to 4.5 per cent. This move, which will come into effect from May 21, will suck out Rs 87,000 crore liquidity from the system. The decision to increase the CRR was announced by RBI Governor Shaktikanta Das after an off-cycle meeting of the Monetary Policy Committee. CRR is one of the main components of the RBI’s monetary policy, which is used to regulate the money supply, level of inflation and liquidity in the country. In April, the RBI announced several liquidity management measures in alignment with the shift in the monetary policy stance, including restoration of a symmetric LAF corridor around the policy repo rate and the introduction of the standing deposit facility (SDF). “Monetary policy has to engender an environment in which inflation persistence is broken and inflation expectations are re-anchored.
Headroom for this reordering of priorities is becoming available with the receding of the pandemic and the steady broad basing of growth as economic activity regains and surpasses pre-pandemic levels,” Das said. He said that liquidity conditions need to be modulated in line with the policy action and stance to ensure their full and efficient transmission to the rest of the economy. Das noted that since banking system liquidity has remained comfortable since April, it has been decided to increase the cash reserve ratio by 50 basis points to 4.5 per cent of net demand and time liabilities (NDTL), effective from the fortnight beginning May 21. “Sustained high inflation inevitably hurts savings, investment, competitiveness and output growth. It has pronounced adverse effects on the poorer segments of the population by eroding their purchasing power. I would, therefore, like to emphasise that our monetary policy actions today – aimed at lowering inflation and anchoring inflation expectations – will strengthen and consolidate the medium-term growth prospects of the economy,” Das added. He reiterated that the RBI will ensure adequate liquidity in the system to meet the productive requirements of the economy in support of credit offtake and growth.