The Reserve Bank of India (RBI), in a bid to increase liquidity in the system, Monday cut by 0.25 percent the cash reserve ratio (CRR), the proportion of money banks are required to keep with it.
The CRR cut will release Rs.17,000 crore liquidity into the economy. This will enable banks to cut lending rates.
The central bank in the mid-quarter review of the monetary policy, however, kept interest rates unchanged saying inflation remained a big concern.
The CRR is reduced by 0.25 percent (or 25 basis points) to 4.50 percent. The new CRR rate will be effective from the fortnight beginning Sep 22, 2012.
The RBI kept the repo rate, the rate at which it lends to commercial banks, unchanged at 8 percent. The reverse repo rate, the rate at which the apex bank borrows money from commercial banks, is also kept unchanged at 7 percent.
In the policy review, the RBI said the main focus of monetary policy remains fighting inflation.
“As inflationary tendencies have persisted, the primary focus of monetary policy remains the containment of inflation and anchoring of inflation expectations,” said RBI Governor D Subbarao.
“Containing inflationary pressures and lowering inflation expectations warrant maintaining the momentum of recent policy actions to step up investment, alleviate supply constraints, and improve productivity.”