India's RBI cuts CRR by 0.75 percentage points; to infuse Rs 480.0 billion

Mumbai, Mar 9 (PTI) To ease the country's liquidity situation, the Reserve Bank of India today slashed CRR -- the portion of deposits banks are required to keep with the central bank -- by 0.75 percentage points, a step that will infuse Rupees 480.0 billion (about USD 9.6 billion) into the economy. "This reduction (in CRR from 5.5 per cent to 4.75 per cent) will inject around Rs 48,000 crore of primary liquidity into the banking system," the Reserve Bank of India (RBI) said in a statement. The reduction in cash reserve ratio (CRR) will come into effect from tomorrow, it said, adding that the measure is aimed at reducing "the liquidity deficit (which) is expected to increase significantly during the second week of March on account of advance tax outflows and the usual frontloading of cash balances by banks with the Reserve Bank." The last date for advance tax payment for fiscal 2011-12 ending March 31, 2012 is March 15 and is estimated to drain out Rs 600.0 billion (about USD 12 billion) from the system. RBI had last reduced CRR by 0.5 percentage points on January 24 thereby injecting Rs 320.0 billion (about USD 6.4 billion) into the cash-strapped system. RBI has announced reduction in CRR a week ahead of its scheduled mid-quarterly review of monetary policy on March 15. Reacting to the RBI's decision to cut CRR, bankers said, it will not immediately result in reduction in interest rates. "Change in the deposit rates will be done on the basis of demand for money.... I do not think there will be any immediate reaction on this neither on the deposit nor on the advances front," Bank of Baroda Chairman and Managing Director M D Mallya said. PTI