Indian Central Bank Raises Cash Reserve Ratio, Maintains Interest Rates

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The Reserve Bank of India increased the cash reserve ratio and maintained other key interest rates on Friday.

In its quarterly Monetary Policy review, the central bank raised the cash reserve ratio by 75 basis points to 5.75% from 5%. The CRR is the amount of deposits that a bank must set aside with the central bank.

The increase will take place in two stages, with the ratio set to be raised by 50 basis points from February 13 and by 25 basis points from February 27. As expected, the central bank maintained the repo rate at 4.75% and reverse repo rate at 3.25%.

The CRR increase will absorb around 360 billion rupees of excess liquidity from the system, the RBI said. "As growth accelerates and the output gap closes, excess liquidity, if allowed to persist, may exacerbate inflation expectations," RBI Governor Duvvuri Subbarao said.

The central bank also raised baseline projection for GDP growth for 2009-10 to 7.5% and for wholesale price index inflation for end March 2010 to 8.5%.

The Reserve Bank of India increased the cash reserve ratio and maintained other key interest rates on Friday. (Market News Provided by RTTNews)