| No lending rate cuts as RBI raises CRR 50 bps |
| BS Reporter / Mumbai October 31, 2007 |
| The Reserve Bank of India today kept key policy rates unchanged but increased the cash reserve ratio (CRR) on continued inflation concerns, ending any hope of banks reducing lending rates for both retail and corporate borrowers. |
| In its mid-term review of monetary policy today, RBI raised the CRR, the proportion of deposits banks have to keep with the central bank, by 50 basis points to 7.5 per cent from November 10 to absorb about Rs 16,000 crore of excess liquidity. |
| It has done so owing to persistent underlying inflationary expectations following high global oil prices and liquidity caused by large capital inflows. |
| Overall, the CRR has been raised 225 basis points since January 2007, the steepest increase since RBI started raising rates in October 2004. |
| The stock market was lukewarm in its response as it had already factored in the CRR cut. The Sensex ended down 194.16 points, or 0.97 per cent, at 19,783.51. The benchmark 10-year federal bond yield rose 5 basis points to 7.86 per cent in the afternoon trade. |
| Meanwhile, largely meeting expectations, RBI kept unchanged the repo rate and the reverse repo rate at 7.75 per cent and 6 per cent, respectively, suggesting the central bank is for status quo on policy signals on interest rates for now. |
| Successive interest rate hikes have helped the central bank rein in inflation to closer to 3 per cent and also bring credit growth within its target of 24-25 per cent. |
