Prices of government securities in the short run could head northwards as the central bank today announced a 25 basis points cut in the cash reserve ratio (CRR) effective from November 16. Further, the 25 basis points cut in repo rate to 5.50 per cent with effect from October 30 will see the term money market develop and force banks to look for alternatives to deploy funds.
The reduction in CRR from 5 per cent to 4.75 per cent will release Rs 3,000 crore into the system, which is already reeling under excess liquidity.
With this reduction, the CRR, which is that part of their net demand and time liabilities which banks are required to hold as cash in balances with the RBI, has been reduced by as much as 375 basis points over the last two years. The reduction is in keeping with the central bank
