RBI hints at another CRR cut

The Reserve Bank of India (RBI) will "consider" a further cut in the cash reserve ratio (CRR) if the systemic liquidity conditions continue to be tight, RBI Deputy Governor Subir Gokarn today said.

"To the extent that an opportunity is available for CRR [which is the percentage of deposits banks have to keep with the central bank] cut further, we will also consider that," Gokarn, who oversees the monetary policy function at the RBI, told reporters here.

But ruling out any immediate action, he said there is no change in his earlier statements that if another round of CRR reduction were to happen, it can happen in the policy statement itself and not midway.

The mid-quarter review of the monetary policy is scheduled for March 15 and it is widely expected that one more CRR cut could be on the anvil.

Gokarn has been maintaining that a reduction in CRR is a much broader decision which is addressed in the policy rather than the bond buybacks (Open Market Operations) that the central bank has been announcing and carrying out almost on a weekly basis to inject liquidity in the system.

Alarmed by the liquidity deficit, which had banks borrowing up to Rs 1.20 lakh crore through the overnight window or the LAF, RBI had cut the CRR by 0.50% in the January 24 policy review to 5.50% but kept the overnight lending rate unchanged, thus maintaining its anti-inflationary stance intact.

However, in spite of the cut which infused about Rs 32,000 crore into the system, banks borrowing stood at over Rs 1 lakh crore from the LAF (liquidity adjustment facility) corridor, much above the RBI's stated liquidity deficit comfort zone of Rs 60,000 crore.