In a move designed to curb inflation, the Reserve Bank of India raised the cash reserve ratio (CRR) for banks by 50 basis points (0.5 per cent) on Thursday, taking it to eight per cent. This hike will be in two phases of 25 bps (basis points) on April 26 and May 10. About Rs 18,500 crore of the resources of the banks are expected to be absorbed through this increase. Excess money supply is one of the factors that contribute to inflation.
The fiscal measures taken by the government earlier this month and a high inflation base of last year have, meanwhile, pushed down the inflation rate to 7.14 per cent for the week ending April 5. This is the first time the wholesale price inflation has come down in over 10 weeks. However, economists expect the figure to remain at around seven per cent for several weeks. The CRR increase by the RBI is expected to mop up Rs 18,500 crore from the market