The Reserve Bank of India on Friday cut the cash reserve
ratio by a 'surprisingly aggressive' 75 basis points.
The move to cut the amount of cash that banks need to park
with the RBI (or CRR) from 5.50 per cent to 4.75 per cent of deposits is aimed
at easing the persistent liquidity crunch being faced by banks.
The latest round of CRR cut comes just five days ahead of
the mid-quarter review of the Monetary Policy.
In its third quarter review of monetary policy in late
January, the central bank had reduced the CRR from 6 per cent to 5.50 per cent
of deposits. However, this did not ease the liquidity pressure.
“We were expecting a 50 basis points cut in Cash Reserve
Ratio. But this 75 basis points cut is a pleasant surprise. It is a good
initiative on the part of RBI. There was a lot of pressure on liquidity and
with the impending advance tax outflow the liquidity situation would have
become worse,” said Mr M.D. Mallya, Chairman, Indian Banks' Association and
Chairman and Managing Director, Bank of Baroda.
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