Apr 1, 2007

RBI ups CRR, repo rate to check inflation

Banks may not fully pass on higher costs to customers

Struggling to contain inflation within its targeted 5-5.5 per cent range, the Reserve Bank of India raised the cash reserve ratio (CRR) 50 basis points to 6.5 per cent from April 28 and the repo rate 25 per cent to 7.75 per cent with immediate effect.

With this, the central bank has raised the CRR thrice, by 150 basis points, and the repo rate five times, by 125 basis points, in the current financial year.

The CRR is the proportion of cash balances the RBI requires banks to park with it. The higher CRR will suck out Rs 15,500 crore from the banking system, adding to the Rs 27,500 crore drained through two previous increases.

THE COST OF INFLATION CONTROL

Date

Action

March 30, 2007CRR hiked by 50 bps to 6.5%; Repo rate hiked by 25 bps to 7.75%
Feb 14, 2007CRR hiked by 50 bps to 6%
Jan 31, 2007Repo rate hiked by 25 bps to 7.5%
Jan 31, 2007General provisioning on standard commercial real estate loans, personal loans & capital market loans doubled to 2%
Dec 11, 2006CRR hiked by 50 bps to 5.5%
Oct 31, 2006Repo rate raised by 25 bps to 7.25%
July 25, 2006Reverse repo and repo rates hikes 25 bps each to 6% and 7% respectively
June 8, 2006RBI raises reverse repo and repo rates by 25 bps to 5.75% and 6.75%, respectively

MARKET OUTLOOK : BE CAREFUL & CAUTIOUS,BUY SELECTED FORNTLINE STOCKS FOR SHORT TERM DELIVERY.

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