Wednesday, 3 October 2012


Recently Reserve Bank Of India announce the cutting of CRR(Cash Reserve Ratio) to 0.25% which will unlock Rs 17,000 crore of liquidity into the system to spur growth. It is not understandable in the context of both internal and external economic condition. As abating industrial growth, high inflation rate of 7.55% and decline in merchandise exports. 

However, RBI's  cautious stance of keeping short term lending and borrowing rates unchanged in view of high inflation which is discouraging the industry. As from another point view the CRR cut will aid government borrowing. The liquidity of the country's economy was under control and there is no need for these aids to the banks.

Investment in  the mutual funds increased to Rs 258.7 billion, compared with Rs 223.6 billion in the period of 2011-2012. The CRR cut will not have much impact on interest rate in the system. There is not likely to be any other reduction as many banks has already done so, both on the deposit and lending sides.

Those who argue for growth over price stability should note note that it would be a vicious circle where inflation leading to lower savings, real demand and investment which will in turn down the growth of aggregate supply, resulting in the haphazard price rice.

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