The Reserve Bank of India (RBI) has hiked the cash reserve ratio (CRR) by 50 basis points to 8%, joining the government in battling the skyrocketing inflation. The ratio indicates the amount of money banks have to keep with RBI as a percentage of their liabilities (deposits).
The rate hike will be introduced in two stages. In the first stage, RBI will raise CRR by 25 basis points to 7.75% on 26 April 2008. Another 25 basis point hike will come into effect from 10 May 2008.
The unscheduled rate hike comes ahead of RBI's annual credit policy for 2008-09 to be unveiled on 29 April 2008.
As a result of the increase in CRR, about Rs 18,500 crore of' banks resources would be taken out of the system.
The inflation, measured by the wholesale price index (WPI), has shot up to 7.41% in the last week of March 2008 and remained above 7% in the first week of April 2008.
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