RBI cut CRR by 75 bps

In a quite surprisingly manner, RBI on friday announced a cut of 75 basis points in cash reserve ratio (CRR). This move will release 48ooo cr of liquidity in banking system. The move is welcomed by bankers and  help them ease the pressure faced in mid-march due to advance tax outflows. Analysts were expecting a cut of 50 bps in CRR, but looking in to the liquidity situation RBI’s 75 bps cut is being cherished by everyone.

Despite the liquidity injection by way of CRR cut, banks are not likely to tinker with deposit and lending rates. Any cut in these rates will happen only if the RBI reduces the repo rate.

The mid-quarter review on March 15 may outline the RBI’s intent to cut interest rates in the monetary policy for 2012-13. Various other factor crucial for RBI to cut lending rate are Oil prices, Inflation management and a clear roadmap on fiscal consolidation by government.