The policy stance is in line with RBI's emphasis on price and fiscal stability. Its move to increase CRR by 25 bps is well within the general expectations.
The policy measures to increase CRR, repo and reverse repo will help in controlling inflation, meet government and private credit demand at the same time, while maintaining the economic growth momentum as interest rates are unlikely to move up sharply. The CRR hike will provide RBI greater flexibility to intervene in the forex market and manage liquidity more effectively. RBI is expected to keep a close watch on inflation and, if required, these measures may be used again to curb inflation. The marginal increase in interest rates as a result of these measures may not have much impact on credit growth, as the economy will continue to grow at 7-7.5 per cent in the first half of the current year and may move to 8 per cent in the latter part.
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