The RBI today took the first step towards reversing the monetary policy stance in nearly two years by cutting the cash reserve ratio (the portion of deposits banks have to keep with the RBI) by 50 basis points to 5.5 per cent. It,however,kept the short-term interest rates intact.
The CRR cut,effective January 28,signifies the banks shift in focus to growth and infusing more liquidity. The move will help banks lend Rs 32,000 crore more and bankers expect interest rates to soften in some sectors. The Sensex jumped 244 points to close at 16,995.
The repo rate,the rate at which the RBI lends to banks,remains unchanged at 8.5 per cent and the reverse repo rate at 7.5 per cent.
RBI governor D Subbarao said for him to cut rates,the government must ensure fiscal consolidation.
For 2011-12,the RBI has revised its baseline growth projections to 7 per cent from 7.6 per cent. It retained its earlier inflation projection at 7 per cent for March 2012.