Cash Reserve Ratio slashed to inject Rs 17000 crore, Repo Rates remained unchanged

Reserve Bank of India on 18 September 2012 injected a liquidity of around Rs 17000 crore by slashing down the Cash Reserve Ratio (CRR) by 25 basis points to 4.50 percent from 4.75 percent. The indicative policy rates were remained at its original level. The repo rate, state-term policy rate and reverse repo rate remained unchanged with 8 and 7 percent respectively.

The RBI stated following its mid-term review of the monetary policy that with increased risks of growth and inflation. In the situation, where there is a persistent inflammatory pressure of fiscal and current deficits constraints, there exists a need of a stronger policy targeting growth risks. The monetary policies are of great use in reviving the growth rate as per the expectations of the market. 

The Cash Reserve Ratio (CRR) will come into effect from 22 September 2012. So far in 2012, RBI has slashed the CRR by 150 basis points. Cash Reserve Ratio, basically is a portion of deposits that the banks are supposed to keep with the central bank (RBI), these deposits doesn’t earn any interest the depositing bank. Repo Rate is a rate at which the central bank offer funds to the borrowing banks, whereas the reverse repo rate is the rate of parking the funds available by the banks with the central bank.

The Wholesale Price Index (WPI) have been moving around 7.5 percent across the financial year, without much changes and so is the condition of Consumer Price Index (CPI) that has been rotating around 10 percent in spite of price hike in food items.

Wholesale Price Index (WPI) means the price fixed as a representative for a wholesale grain. In India, WPI is used for monitoring inflation. Consumer Price Index (CPI) is a statistical estimate that helps in measurement of price change of services and consumer goods purchased by the households.