RootsIn -RBI slashes crr by 0.5%,keeps rates unchanged:

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RBI slashes crr by 0.5%,keeps rates unchanged:

Location - Delhi ..Posted on 24 Jan 2012

Hyderabad: The Reserve Bank of India left key interest rates untouched on Tuesday but cut cash reserve ratio or CRR by 0.5 per cent to 5.5 per cent.

The repo rate (the rate at which the RBI lends funds to banks) stays at 8.5 per cent and reverse repo rate (at which the RBI borrows money from banks) remains unchanged at 7.5 per cent.

The cash reserve ratio (CRR) was cut 0.5 per cent at 5.5 per cent. This is the percentage of deposits banks have to maintain with RBI.

The central bank announced the third quarter (quarter to December 2011) review of the monetary policy on Tuesday.

D Subbarao, RBI governor said on Tuesday. "Growth in India has also moderated. In particular, investment activity has decelerated sharply, reflecting heightened global uncertainty and domestic fiscal, monetary, political and administrative conditions".

RBI hiked rates 13 times since March, 2010 in a bid to fight inflation. India’s headline inflation, measured by the wholesale price index, for the month of December 2011, eased to 7.47 per cent, the lowest in two years against 9.11 per cent in November 2011 against 9.73 per cent in October.

The Chairman of Prime Minister's Economic Advisory Panel, C Rangarajan, said RBI has taken a "wise decision" and it would lead to softening of interest rate.

He said"The improvement in liquidity condition will automatically have effect on interest rate. Improvement in liquidity condition will lead to softening of interest rate".

On CRR cut, RBI said, "Persistence of tight liquidity conditions could disrupt credit flow and further exacerbate growth risks...CRR is the most effective instrument for permanent liquidity injections".