Easing CRR norms to aid liquidity, rates: analysts

The amendments to the Reserve Bank of India Act, 1974, will give the central bank greater flexibility in managing liquidity and keeping interest rates under control, analysts say. Amendments to the RBI Act include the removal of floor and ceiling on the cash reserve ratio.

"The removal of floor rate, currently 3 per cent, will mean that the central bank can now take the CRR to nil. This would help the central bank in handling liquidity conditions well and in keeping interest rates stable," said Sailav Kaji, economist at Pioneer Intermediaries.

"Though an immediate impact may not be seen, banks can now defer any plans""including a further hike in deposit rates""to raise resources to fund their huge credit growth. Besides this move on CRR might help ease the G-sec yields which would in turn improve treasury income of banks," said Kannan Shah, banking analyst at Networth Stock Broking.

According to analysts a 1 per cent cut in the CRR will release Rs 200 billion into the system.