RBI's CRR cut to unlock Rs 17,000 cr, banks may reduce rates

However, the RBI's cautious stance of keeping short-term lending and borrowing rates unchanged in view of high inflation disappointed India Inc.

Close on the central bank's decision on CRR cut, banks have indicated that they will respond positively and take a fresh look at the lending rates soon.

Following the cut, CRR - the portion of deposits that banks are required to keep with RBI - will come down to 4.5 per cent, while the repo rate - at which the central bank lends to the banks - would remain unchanged at 8 per cent.

Appearing satisfied by the RBI's decision to lower CRR, Finance Minister P Chidambaram said, "It is a small step, but a welcome step. I am not disappointed with the RBI policy. Mid quarter review by RBI is encouraging and supportive. RBI is slated to take more decisions".

The Minister also said that government would be taking more steps between now and October 30 -- the date on which the RBI will come out with its second quarter monetary policy.

"I am very confident that between now and October 30 the government is expected to take a number of additional policy measures and also lay out a plan of fiscal consolidation. The response of RBI on October 30 will be far more supportive of growth," Chidambaram said.

Justifying his cautious stance, RBI Governor D Subbarao said, "as inflationary tendencies have persisted, the primary focus of monetary policy remains the containment of inflation and anchoring of inflation expectations."

According to industry body Assocham, RBI has once again deeply disappointed the industry which was expecting substantial cut in the interest rates. MORE