India’s central bank cuts CRR

Mumbai, October 6:

India’s central bank today cut the amount of cash banks must hold in reserve to boost liquidity in the financial system, citing ‘a sharp deterioration in the global financial environment’. The bank reduced its cash reserve ratio (CRR) for commercial banks by 50 basis points to 8.50 per cent, as it sought to ease tight credit conditions that have hit economic demand.

The bank, which has up to now made battling double-digit inflation its top aim, said ensuring there was enough cash in the system would take ‘priority in the hierarchy of policy objectives over the period ahead’.

“Central banks across the world have stepped up their liquidity operations,” it said. The move came after many Indian businesses had complained that tight credit conditions were hurting demand and slowing economic growth in Asia’s third-largest economy. The bank, which has been steadily tightening monetary policy since 2004 to douse inflation that now is riding at nearly 12 per cent, said the move was temporary and would be reviewed on an ongoing basis.

There has been a sharp deterioration in the global financial environment, now.