RBI Raises CRR By 0.5 Per Cent

The Reserve Bank has raised cash reserve ratio by 50 basis points to 7 per cent while the CRR repo and reverse repo rates as well as the bank rates remain unaffected. The new CRR rate will come into effect from August 04. Inflation target for 07-08 remain at 5 per cent according to the first quarter credit policy review unveiled on July 31. The average international price of the Indian crude oil basket increased from $ 56.2 per barrel in January-March 2007 to $ 66.2 per barrel in April-June 2007 and to around $ 73.5 per barrel on July 27, 2007.GDP forecast for FY-08 has been set at 8.5 per cent.

According to the policy, while non-food credit growth has slowed down, the acceleration in money supply and reserve money warrants an appropriate response.

Additionally, the RBI has removed 3000 crore reverse cap from August 06 The other highlights of the policy are as follows:

·Hedge funds pose significant risks to the markets says credit policy.

·Financial stability to add to market stance says RBI.

·Inflation targeted at 4 to 4.5 % in the medium term. Holding inflation within 5.0 per cent in 2007-08 assumes priority in the policy hierarchy, while reinforcing the medium-term objective to condition policy and perceptions to reduce inflation to 4.0-4.5 per cent on a sustained basis. CRR to be used for managing liquidity.·Domestic outlook was favourable.·Monetary stance spelt out in February 2007 continues.·Credit policy guided by domestic policy.