The RBI has said that the CRR cut would be effective from September 22, 2012. It may be noted here that the reverse repo rate (the rate at which central bank absorbs excess liquidity through borrowings from banks) remains at 7 per cent.
It is expected that the CRR cut would direct the banks to bring down the lending rates, a move which will improve investments and drive growth in the country.
It is worth mentioning here that the CRR cut follows the big ticket reforms announced by the Union Government on Friday. For the record, the Cabinet Committee of Economic Affairs (CCEA) announced a series of reforms in a broad range of sectors including multi-brand retail, broadcasting and aviation.
The domestic banking industry is of a view that the CRR cut is a very positive move and RBI has given a clear signal that the central bank is willing to respond to complement the measures announced by the government to boost the growth of the economy.
The central bank also said that the measures on diesel prices and LPG usage will hurt inflation in the short run but it is a significant achievement of the government as these moves will strengthen the macroeconomic fundamentals of the economy.
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