The RBI Governor, Dr D. Subbarao, decided to give markets
something to cheer about by cutting the cash reserve ratio (CRR) by 50 basis
points and release Rs 32,000 crore into the system. The CRR will now be at 5.5
per cent. However, the key repo rate was retained at the same level of 8.5 per
cent.
CRR is the fixed portion of the total deposits or the net
demand and time liabilities (NDTL) that banks mandatorily have to keep with the
Reserve Bank of India. This means, for every Rs 100 deposits with the RBI,
banks will have to set aside Rs 5.50 as CRR instead of Rs 6 earlier. The cut in
CRR was done to ease the tight liquidity situation.
Meanwhile, RBI has also cut FY12 gross domestic product forecast
to 7% from 7.6%. It has kept inflation forecast unchanged at 7%.
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