In a move to control inflation, the Reserve Bank of India (RBI) announced a 0.5 per cent hike in cash reserve ratio (CRR), whereupon interest rates on retail loans are expected to rise.
According to an RBI release, it was essential to take appropriate action on an urgent basis to control the current macroeconomic monetary and anticipated liquidity conditions.
According to industry analysts, since banks will be left with less cash to lend and have to source funds at a higher cost, they might increase lending rates.
The CRR would be hiked by 0.25 per cent from April 26, and by an identical percentage from May 10.
The year-on-year inflation, which was 3.83 per cent during the last credit policy in January, had gone up to 7.41 per cent on March 29 before marginally falling to 7.14 per cent on April 5.
The CRR hike comes within a day of Finance Minister P Chidambaram assuring the Lok Sabha that RBI will assess the monetary situation and take appropriate action.
