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RBI cuts CRR by 0.25%, keeps interest rates unchanged

Tags: RBI, CRR, interest rates, unchanged, SMEs, banks, growth, P. Chidambarm, Pratip Choudhary

September 18, 2012 | COMMENTS ( 0 )

RBI cuts CRR by 0.25%, keeps interest rates unchanged

The Reserve Bank's decision to cut the Cash Reserve Ratio by 0.25% has received mixed response from India Inc., which has been demanding a reduction in interest rates to spur growth.

However, CRR, the proportion of money banks are required to keep with the central bank, is reduced by 0.25 per cent (or 25 basis points) to 4.50 per cent releasing Rs 17,000 crore into the banking system. The new CRR rate will be effective from the fortnight September 22, 2012.

The CRR cut will release Rs 17,000 crore liquidity into the economy, the central bank said in the mid-quarter review of the monetary policy.

The move may ease interest rates on home and car loans. Also, according to bankers, SMEs are also likely to benefit, as these banks might offer a reduced rate.

SBI Chairman Pratip Choudhury  while welcoming the RBI move, told a news channel, "We would like to make more cuts in the manufacturing, SME and industrial segment because that is where the demand has not been stimulated. In our consumer segment, home loan and car loan, prices are already the lowest. So, let us see." The response came when he was asked how much the rates might come down now, after the CRR cut.

Finance Minister P. Chidambaram said that the government would take further steps in the next one and half month to bring more fiscal discipline.

"I am very confident that between now and October 30 since the government is expected to take a number of additional policy measures and also lay out the path of fiscal correction, the response of RBI on October 30 will be far more supportive of growth," Chidambaram told reporters.

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