When and why RBI changed banks' cash reserve ratio
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K.Karthik Raja
Feb 24, 2008, 11:32:20 PM2/24/08
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When and why RBI changed banks' cash reserve ratio
.
MUMBAI - Below is the chronology of the Reserve Bank of India's
revisions in the banks' cash reserve ratio, and the reasons for the
changes, with the latest revision listed first:
.
Effective : CRR in pct Chg in bps
.
Nov 10, 2007 : 7.50 : + 50 (Announced on Oct 30)
Aug 4, 2007 : 7.00 : + 50 (Announced on Jul 31)
Apr 28, 2007 : 6.50 : + 25 (Announced on Mar 30)
Apr 14, 2007 : 6.25 : + 25 (Announced on Mar 30)
Mar 3, 2007 : 6.00 : + 25 (Announced on Feb 13)
Feb 17, 2007 : 5.75 : + 25 (Announced on Feb 13)
Jan 6, 2007 : 5.50 : + 25 (Announced on Dec 8)
Dec 23, 2006 : 5.25 : + 25 (Announced on Dec 8)
Oct 2, 2004 : 5.00 : + 25 (Announced on Sep 11)
Sep 18, 2004 : 4.75 : + 25 (Announced on Sep 11)
Jun 14, 2003 : 4.50 : - 25
Nov 16, 2002 : 4.75 : - 25
Jun 1, 2002 : 5.00 : - 50 (Advanced from Jun 15, 2002)
Dec 29, 2001 : 5.50 : - 25
Nov 3, 2001 : 5.75 : - 175
May 19, 2001 : 7.50 : - 50
Mar 10, 2001 : 8.00 : - 25
Feb 24, 2001 : 8.25 : - 25
Aug 12, 2000 : 8.50 : + 25
Jul 29, 2000 : 8.25 : + 25
Apr 22, 2000 : 8.00 : - 50
Apr 8, 2000 : 8.50 : - 50
Nov 6, 1999 : 9.50 : - 50
May 8, 1999 : 10.00 : - 50
Mar 13, 1999 : 10.50 : - 50
Aug 29, 1998 : 11.00 : + 100
Apr 11, 1998 : 10.00 : - 25
Mar 28, 1998 : 10.25 : - 25
Jan 17, 1998 : 10.50 : + 50
Dec 6, 1997 : 10.00 : + 50
------------------------------------------------------------------------------
Mar 28, 1998 : 8.00 : - 25 SCRAPPED
Mar 14, 1998 : 8.25 : - 25 SCRAPPED
Feb 28, 1998 : 8.50 : - 25 SCRAPPED
Feb 14, 1998 : 8.75 : - 25 SCRAPPED
Jan 17, 1998 : 9.00 : - 25 SCRAPPED
Dec 20, 1997 : 9.25 : - 25 SCRAPPED
------------------------------------------------------------------------------
Nov 22, 1997 : 9.50 : - 25
Oct 25, 1997 : 9.75 : - 25
Jan 18, 1997 : 10.00 : - 50
Jan 4, 1997 : 10.50 : - 50
Nov 9, 1996 : 11.00 : - 50
Oct 26, 1996 : 11.50 : - 50
Jul 6, 1996 : 12.00 : - 100
May 11, 1996 : 13.00 : - 50
Apr 27, 1996 : 13.50 : - 50
Dec 9, 1995 : 14.00 : - 50
Nov 11, 1995 : 14.50 : - 50
Aug 6, 1994 : 15.00 : + 25
Jul 9, 1994 : 14.75 : + 25
Jun 11, 1994 : 14.50 : + 50
May 15, 1993 : 14.00 : - 50
Apr 17, 1993 : 14.50 : - 50
Jul 1, 1989 : 15.00 : + 400
.
WHY THE RATE WAS CHANGED
Summary of developments amid which the CRR was revised, starting with
the latest change:
.
Aug 4, 2007: To 7.00% from 6.50%
RBI hiked the CRR in an effort to slow money supply expansion and
as a signal for banks not to slash lending rates as monetary policy
remains tight.
A higher priority for managing "appropriate" liquidity conditions
in the policy hierarchy has been accorded at the current juncture, the
RBI said in its first quarterly review of the 2007-08 (Apr-Mar) Annual
Policy.
Worried about the acceleration in money supply and reserve money--
which are threats to inflation--the RBI said banks will have to keep
aside 7% of their demand and time liabilities, or an additional 160
bln rupees, from Aug 4 as cash reserves.
.
Apr 28, 2007: To 6.50% from 6.25%
Apr 14, 2007: To 6.25% from 6.00%
.
The twin hikes were announced on Mar 30, on review of the current
macroeconomic, monetary and anticipated liquidity conditions, and with
a view to containing inflation expectations.
RBI expects to drain around 155 bln rupees from banks through the
hike.
The central bank justified the hike by saying inflation had risen
"beyond the tolerance threshold" of 5.0-5.5% target for FY07-end.
Inflation has been ruling at 6.5% for the third straight week.
Credit
growth of banks was still strong at 30%, while money supply growth was
also at a high of 22% as on Mar 16.
Strong portfolio inflows were adding to liquidity and thus
fuelling
inflation.
The central bank said 23.89 bln rupees were also absorbed through
Market Stabilisation Scheme between Feb 1-Mar 30.
.
Mar 3, 2007: Hiked to 6% from 5.75%
Feb 17, 2007: Hiked to 5.75% from 5.50%
.
The twin hikes were announced on Feb 13 with a view to contain
inflation and tighten liquidity.
"In view of the paramount need to contain inflation expectations
and in the light of current liquidity conditions, it has been decided
to increase the cash reserve ratio," RBI said after hiking the CRR.
RBI expects to drain around 140 bln rupees from banks through the
hike.
The central bank justified the hike by saying liquidity had improved
in
recent weeks.
It was absorbing funds through Liquidity Adjustment Facility in
significant contrast to the persistent injection of funds seen between
Jan 8 to Feb 7.
The central bank said some 11.09 bln rupees were also absorbed
through Market Stabilisation Scheme so far this month.
RBI also cited strong economic growth and firming inflation as
reasons for the CRR hike.
It the Central Statistical Organisation had projected a GDP growth
of
9.2% for FY07 on top of 9.0% in the previous year. Latest inflation at
6.6% on Jan 27 was at a 2-year high and well above RBI's projection of
5.0-5.5% for March-end.
RBI also said industry expanded 10.8% in Apr-Dec, compared with
8.0% year ago.
It said non-food loans remained above 30% and banks' deposits too
grew at 23% up to Feb 2 from a year earlier.
.
Jan 6, 2007: Hiked to 5.5% from 5.25%
Dec 23, 2006: Hiked to 5.25% from 5%
.
The twin hikes were announced on Dec 8 with a view to tighten
liquidity and reign in inflation.
Inflation for the week to Nov 24 was 5.30%, down from 5.45% a week
ago but up from 4.5% a year ago.
The finance minister has been reiterating that inflation needs to
be
checked and that the "tolerance" level for inflation was below 4%.
RBI also cited the year-on-year rise in non-food credit to 30% and
growth in money supply as another reasons for the hike.
India's robust gross domestic growth also prompted the hike, as a
policy measure, RBI said.
The central bank expects to drain around 135 bln rupees from the
banking system through the hike.
.
Oct 2, 2004: Hiked to 5.00% from 4.75%;
Sep 18, 2004: Hiked to 4.75% from 4.50%
.
The two-stage hike of a total 50 basis points was announced on Sep
11, 2004 following a review of liquidity conditions. From Sep. 18, it
would also cut the interest it pays on banks' eligible cash balances
under CRR to 3.5% from 6.0%.
RBI reiterated its medium-term objective to reduce CRR to 3%. The
measures were consistent with the stance of monetary policy, RBI said.
For the previous three -four weeks, the finance minister and the RBI,
including its governor and its latest annual report, had listed
liquidity overhang as among the causes of inflation. WPI inflation for
the week to Aug. 28 was at a 4-year high of 8.33%.
After the hikes were announced, the finance minister said more
steps were likely to control inflation, which he mainly attributed to
supply side factors such as rise in overseas crude oil prices.
.
Jun 14, 2003: Cut to 4.50% from 4.75%
The central bank cut in CRR to 4.50% from 4.75% took effect on Jun
14. The move was announced in the 2003-04 monetary policy. The cut
added around 30 billion rupees to banking system.
.
Nov 16, 2002: Cut to 4.75% from 5.00%
"As a further step in moving towards the statutory level of CRR of
3.0 per cent, the RBI reduced the CRR to 4.75% from 5.00% effective
from the fortnight beginning November 16, 2002. With this reduction,
CRR was reduced by 375 basis points over the past two years.
.
Jun 1, 2002: Cut to 5.00% from 5.50%
The RBI announced a 50-basis-point cut in the banks' cash reserves
as part of its 2002-03 (April-March) monetary and credit policy
announcement on April 29. The RBI had initially scheduled the
effective date of reduction in CRR for June 15. On reviewing liquidity
conditions, it advanced the CRR cut effective date to June 1. The CRR
reduction boosted liquidity by 60 billion rupees.
The RBI said this cut was part of its medium-term objective of paring
the cash reserves to the statutory minimum of 3.0%. The RBI said it
was rationalising the CRR by withdrawing various exemptions given to
banks on certain specific categories of liabilities for CRR
requirement.
.
Dec 29, 2001: To be cut to 5.50% from 5.75%
The second of the two-stage cut in the banks' cash reserve ratio
announced in the central bank's Oct. 22 mid-term review of its 2001-02
(April-March) credit policy takes effect. This cut is set to boost
liquidity by 20 billion rupees. In its credit policy review, the RBI
had rationalised its norms for CRR maintenance. It said except for
interbank borrowings, all other liabilities of banks will require CRR
maintenance. The RBI had also said interest on CRR
maintained with it will be pegged to Bank Rate, currently at 6.50%.
.
Nov 3, 2001: Cut to 5.75% from 7.50%
The first of the two-stage cut in the banks' cash reserve ratio
announced in the Oct. 22 review of the central bank's monetary and
credit policy boosted liquidity by a huge 60 billion rupees.
.
May 19, 2001: CRR cut to 7.50% from 8.00%
This steep cut boosted bank surpluses by 45 billion rupees. The
central bank had not assigned any reasons for the rate cut. The
market, however, interpreted the RBI's action as a way to boost banks'
liquidity amid large outflows to finance the voluntary retirement of
thousands of their employees.
The cut was in line with the central bank's medium term objective of
lowering the CRR to its statutory minimum of 3%.
.
Mar 10, 2001: CRR cut to 8.00% from 8.25%
The second of the two-stage cut in the CRR announced on Feb 16
boosted liquidity by 20.50 billion rupees. The RBI made the cut after
a review of the international and domestic financial markets.
Financial markets, especially the debt market, had been expecting the
Indian central bank to lower the CRR and its key Bank Rate as a sequel
to the interest rate cuts effected by the U.S. Federal Reserve in
January. The CRR cut is perceived as more of a measure to help
softening of interest rates rather than solely aimed at boosting
liquidity. Liquidity in the market was adequate.
Feb 24, 2001: CRR to be cut to 8.25% from 8.50%
The first of the two-stage cut in the banks' cash reserve ratio
announced on Feb. 16 boosted liquidity by 20.50 billion rupees.
.
Aug 12, 2000: CRR to be hiked to 8.50% from 8.25%
The second of the two-stage hike in the cash reserve ratio
announced on July 21 drained interbank liquidity by 19 billion rupees.
On July 21, the central bank also announced a 100 basis points hike in
the Bank Rate to 8.00% and cut banks' loan limits under its refinance
facility by half. This was the third time in fiscal 2000-01 that the
RBI took measures to prevent sharp fluctuations in the rupee's
exchange rate. The central bank's monetary moves sprang a nasty
surprise for many foreign exchange and money market players. The
harsh monetary measures followed RBI's "verbal" intervention on May 25
and June 8, when the rupee had fallen against the dollar in
speculative trade. The RBI had also made explicit its resolve to
prevent, through direct or indirect intervention, any unwarranted
fluctuation in the rupee's exchange rate. On May 25, the RBI had
announced several measures to support the rupee in a similar
situation, including a 50% surcharge on import loans and a 25% minimum
interest on overdue export bills. (These two moves were rolled back
from Jan 6, 2001.)
.
Jul 29, 2000: CRR hiked to 8.25% from 8.00%
The first of the two-stage hike in the cash reserve ratio
announced on July 21 drained interbank liquidity by 19 billion rupees.
.
Apr 22, 2000: CRR cut to 8.00% from 8.50%
The second of the two-stage cut in the cash reserve ratio
announced on April 1 became effective. This cut was in line with the
central bank's medium-term strategy to lower the CRR to the minimum
stipulated 3.00%. The cut boosted banks' liquidity by 36 billion
rupees and was expected to help ensure the government's market
borrowing proceeded smoothly.
.
Apr 8, 2000: CRR cut to 8.50% from 9.00%
The first stage of the cut announced on April 1 became effective.
It was expected to boost interbank liquidity by 36 billion rupees.
.
Nov 20, 1999: CRR cut to 9.00% from 9.50%
The second of the two-stage cut in the CRR announced in the Oct.
29, 1999, mid-year review of 1999-2000 (April-March) monetary and
credit policy of the RBI. This increased banks' liquidity by 35
billion rupees.
.
Nov 6, 1999: CRR cut to 9.50% from 10.0%
The cut was announced in the Oct. 29, 1999 mid-year review of
1999-2000 (April-March) monetary and credit policy of the RBI. This
had increased banks' loanable resources by 35 billion rupees. The RBI
also introduced a lag of two weeks in maintaining the stipulated CRR
as a measure of simplification..
May 8, 1999: CRR cut to 10.0% from 10.5%
The cut announced on April 20, 1999 in the RBI's Monetary and
Credit policy was more of a response to the RBI's assessment of the
prevailing liquidity situation, Governor Bimal Jalan said. The policy
noted that a major challenge was the need to reconcile conflicting
objectives of restraining the overall growth of liquidity in order to
ensure price stability and at the same time facilitating the flow of
bank credit toward productive sectors of the economy to improve
growth.
.
Mar 13, 1999: CRR cut to 10.5% from 11.0%
The cut, announced March 1, 1999, followed Finance Minister
Yashwant Sinha's 1999-00 budget presentation on Feb. 27. RBI Governor
Bimal Jalan said the cut was because of weak inflation, slow credit
off-take and government's lower market borrowing target in 1999-2000.
"The RBI's judgment now is that conditions are right for such a move,"
he said. The RBI also cut the key Bank Rate to 8% from 9% and the
securities repurchase agreements tender rate to 6%
from 8%. On Feb. 27, WPI inflation was 5.26% vs. a peak of 8.84% on
Sep. 27, 1998.
.
Aug 29, 1998: CRR hiked to 11.0% from 10.0%
The CRR was hiked to 11.0% from 10.0% as a "temporary" measure to
absorb liquidity, and reversing cuts a couple of months earlier. The
hike followed a sharp fall in the rupee's exchange rate. On Aug. 20,
1998 it was at a record low of 43.69 rupees per U.S $1.
.
Apr 11, 1998: CRR cut to 10.25% from 10.50%;
Mar 28, 1998: CRR cut to 10.00% from 10.25%
After the Jan 1998 moves established "order" in the rupee market,
RBI followed up a Bank Rate cut with the CRR cut, which boosted banks'
resources by 26 billion rupees. These reversed tightening measures of
January 1998. Later,
the RBI said it would also release in 12 equal installments from May
1998 to
March 1999 two-thirds of balances impounded in May 1991 and Apr 1992
under a
special 10% incremental CRR on net demand and time liabilities.
.
Jan 17, 1998: CRR hiked to 10.5% from 10.0%
The crisis in Southeast Asia turned the Indian rupee volatile,
prompting
the hike in the CRR with other liquidity tightening measures. The hike
came after the rupee fell to the then record low of 40.45 rupees per
US $1 mid-January. The hike drained bank resources by 25 billion
rupees.
.
Dec 6, 1998: CRR hiked to 10.00% from 9.50%
.
Nov 28, 1997: CRR cuts deferred and scrapped subsequently
RBI said it would scrap the following schedule of CRR reductions.
.
* Deferred: Dec 20, 1997 CRR cut by 25 bps to 9.25%
* Deferred: Jan 17, 1998 CRR cut by 25 bps to 9.00%
* Deferred: Feb 14, 1998 CRR cut by 25 bps to 8.75%
* Deferred: Feb 28, 1998 CRR cut by 25 bps to 8.50%
* Deferred: Mar 14, 1998 CRR cut by 25 bps to 8.25%
* Deferred: Mar 28, 1998 CRR cut by 25 bps to 8.00%
.
The RBI deferred the cuts in cash reserve ratio it had announced
earlier
"taking into account the overall liquidity position and the
developments in the
financial markets, in particular, the possible spill-over effects on
the
foreign exchange markets".
.
Nov 22, 1997: CRR cut to 9.50% from 9.75%
.
Oct 25, 1997: CRR cut to 9.75% from 10.00%
The RBI had announced equal eight-stage cuts in the CRR to 8.25%
as part of its October-March credit policy on Oct 21, 1997. However,
volatility in the foreign exchange market prompted the RBI to defer
and subsequently scrap the cuts after the first two stages had taken
effect.
The RBI had said banks would be paid an interest of 4.0% per annum
on all eligible cash balances maintained with RBI to improve the
return on cash balances of banks since the rate was higher than the
earlier effective rate of 3.5%.
Earlier, on April 26, 1997, the RBI exempted banks from
maintaining
reserves on liabilities to banking system. It clarified that in view
of
multiple prescriptions on different categories of liabilities,
including a zero reserve requirement on certain liabilities, effective
CRR and SLR of banks on total demand and time liabilities, including
inter-bank liabilities were not to be less than 3% and 25%,
respectively.
.
Jan 18, 1997: CRR cut to 10.0% from 10.5%.
.
Jan 4, 1996: CRR cut to 10.5% from 11.0%
.
Nov 9, 1996: CRR cut to 11.0% from 11.5%
.
Oct 26, 1996: CRR cut to 11.5% from 12.0%
Cuts were announced in the October-March 1996 credit policy. The
RBI said the cut in CRR should not be viewed only as a response to
short-term developments but it was part of a plan to restructure the
CRR refinance regime through simultaneous reduction in reserve needs
and refinance entitlements. In 1996-97, reflecting various policy
measures, the overall interest rate structure showed a declining
trend. The reduction in interest rates at the shorter end was more
pronounced.
.
Jul 6, 1996: CRR cut to 12.00% from 13.00%
The cut was to boost banks' lendable resources by 41 billion
rupees and was meant to have a positive impact on their profitability.
.
May 11, 1996: CRR cut to 13.0% from 13.5%
.
Apr 27, 1996: CRR cut to 13.5% from 14.0%
The cuts, announced in the RBI's Apr-Sep credit policy on Apr 3,
1996, were framed so that banks had resources to keep up the momentum
of credit flows to support output. The 1996-97 policy was aimed to
consolidate "the hard-won gains" against inflation in 1995-96. Cuts
boosted banks' resources by 38 billion rupees. The policy aimed at a
1996-97 M3 expansion at 15.5-16.0% and a bank credit expansion of
20.0%.
.
Dec 9, 1995: CRR cut to 14.00% from 14.50%
Cut was to boost liquidity to meet growing credit needs "in
response to high gross domestic product growth". In 1995-96, GDP
growth was 7.2%.
Nov 11, 1995: CRR cut to 14.50% from 15.00%
Cut in CRR was on the backdrop of a sharp rise in call money
rates, which had risen after the RBI's exchange market interventions--
buying rupees against dollar sales--in October 1995. These moves
drained liquidity. "Given the buoyant demand for credit for supporting
real activities, there was a need for liquidity injection," the RBI
said. The rupee was around 35 rupees per $1 until mid-Jan 1996.
.
Aug 6, 1994: CRR hiked to 15.00% from 14.75%
.
Jul 9, 1994: CRR hiked to 14.75% from 14.50%
.
Jun 11, 1994: CRR hiked from 14.00% to 14.50%
.
May 1991 until April 1993, the CRR was at 15%. In April 1993, it
was
revised down for the first time since 1982. More cuts brought it to
14%. In the April-September 1994 credit policy, it was hiked to 15%.
RBI Governor C. Rangarajan said while the medium-term plan was to
reduce CRR, "if the primary money creation is excessive", the RBI
would not "hesitate to deviate temporarily from the medium term
strategy and raise the CRR to neutralise large monetary expansion".
www.kences.blogspot.com
.
MUMBAI - Below is the chronology of the Reserve Bank of India's
revisions in the banks' cash reserve ratio, and the reasons for the
changes, with the latest revision listed first:
.
Effective : CRR in pct Chg in bps
.
Nov 10, 2007 : 7.50 : + 50 (Announced on Oct 30)
Aug 4, 2007 : 7.00 : + 50 (Announced on Jul 31)
Apr 28, 2007 : 6.50 : + 25 (Announced on Mar 30)
Apr 14, 2007 : 6.25 : + 25 (Announced on Mar 30)
Mar 3, 2007 : 6.00 : + 25 (Announced on Feb 13)
Feb 17, 2007 : 5.75 : + 25 (Announced on Feb 13)
Jan 6, 2007 : 5.50 : + 25 (Announced on Dec 8)
Dec 23, 2006 : 5.25 : + 25 (Announced on Dec 8)
Oct 2, 2004 : 5.00 : + 25 (Announced on Sep 11)
Sep 18, 2004 : 4.75 : + 25 (Announced on Sep 11)
Jun 14, 2003 : 4.50 : - 25
Nov 16, 2002 : 4.75 : - 25
Jun 1, 2002 : 5.00 : - 50 (Advanced from Jun 15, 2002)
Dec 29, 2001 : 5.50 : - 25
Nov 3, 2001 : 5.75 : - 175
May 19, 2001 : 7.50 : - 50
Mar 10, 2001 : 8.00 : - 25
Feb 24, 2001 : 8.25 : - 25
Aug 12, 2000 : 8.50 : + 25
Jul 29, 2000 : 8.25 : + 25
Apr 22, 2000 : 8.00 : - 50
Apr 8, 2000 : 8.50 : - 50
Nov 6, 1999 : 9.50 : - 50
May 8, 1999 : 10.00 : - 50
Mar 13, 1999 : 10.50 : - 50
Aug 29, 1998 : 11.00 : + 100
Apr 11, 1998 : 10.00 : - 25
Mar 28, 1998 : 10.25 : - 25
Jan 17, 1998 : 10.50 : + 50
Dec 6, 1997 : 10.00 : + 50
------------------------------------------------------------------------------
Mar 28, 1998 : 8.00 : - 25 SCRAPPED
Mar 14, 1998 : 8.25 : - 25 SCRAPPED
Feb 28, 1998 : 8.50 : - 25 SCRAPPED
Feb 14, 1998 : 8.75 : - 25 SCRAPPED
Jan 17, 1998 : 9.00 : - 25 SCRAPPED
Dec 20, 1997 : 9.25 : - 25 SCRAPPED
------------------------------------------------------------------------------
Nov 22, 1997 : 9.50 : - 25
Oct 25, 1997 : 9.75 : - 25
Jan 18, 1997 : 10.00 : - 50
Jan 4, 1997 : 10.50 : - 50
Nov 9, 1996 : 11.00 : - 50
Oct 26, 1996 : 11.50 : - 50
Jul 6, 1996 : 12.00 : - 100
May 11, 1996 : 13.00 : - 50
Apr 27, 1996 : 13.50 : - 50
Dec 9, 1995 : 14.00 : - 50
Nov 11, 1995 : 14.50 : - 50
Aug 6, 1994 : 15.00 : + 25
Jul 9, 1994 : 14.75 : + 25
Jun 11, 1994 : 14.50 : + 50
May 15, 1993 : 14.00 : - 50
Apr 17, 1993 : 14.50 : - 50
Jul 1, 1989 : 15.00 : + 400
.
WHY THE RATE WAS CHANGED
Summary of developments amid which the CRR was revised, starting with
the latest change:
.
Aug 4, 2007: To 7.00% from 6.50%
RBI hiked the CRR in an effort to slow money supply expansion and
as a signal for banks not to slash lending rates as monetary policy
remains tight.
A higher priority for managing "appropriate" liquidity conditions
in the policy hierarchy has been accorded at the current juncture, the
RBI said in its first quarterly review of the 2007-08 (Apr-Mar) Annual
Policy.
Worried about the acceleration in money supply and reserve money--
which are threats to inflation--the RBI said banks will have to keep
aside 7% of their demand and time liabilities, or an additional 160
bln rupees, from Aug 4 as cash reserves.
.
Apr 28, 2007: To 6.50% from 6.25%
Apr 14, 2007: To 6.25% from 6.00%
.
The twin hikes were announced on Mar 30, on review of the current
macroeconomic, monetary and anticipated liquidity conditions, and with
a view to containing inflation expectations.
RBI expects to drain around 155 bln rupees from banks through the
hike.
The central bank justified the hike by saying inflation had risen
"beyond the tolerance threshold" of 5.0-5.5% target for FY07-end.
Inflation has been ruling at 6.5% for the third straight week.
Credit
growth of banks was still strong at 30%, while money supply growth was
also at a high of 22% as on Mar 16.
Strong portfolio inflows were adding to liquidity and thus
fuelling
inflation.
The central bank said 23.89 bln rupees were also absorbed through
Market Stabilisation Scheme between Feb 1-Mar 30.
.
Mar 3, 2007: Hiked to 6% from 5.75%
Feb 17, 2007: Hiked to 5.75% from 5.50%
.
The twin hikes were announced on Feb 13 with a view to contain
inflation and tighten liquidity.
"In view of the paramount need to contain inflation expectations
and in the light of current liquidity conditions, it has been decided
to increase the cash reserve ratio," RBI said after hiking the CRR.
RBI expects to drain around 140 bln rupees from banks through the
hike.
The central bank justified the hike by saying liquidity had improved
in
recent weeks.
It was absorbing funds through Liquidity Adjustment Facility in
significant contrast to the persistent injection of funds seen between
Jan 8 to Feb 7.
The central bank said some 11.09 bln rupees were also absorbed
through Market Stabilisation Scheme so far this month.
RBI also cited strong economic growth and firming inflation as
reasons for the CRR hike.
It the Central Statistical Organisation had projected a GDP growth
of
9.2% for FY07 on top of 9.0% in the previous year. Latest inflation at
6.6% on Jan 27 was at a 2-year high and well above RBI's projection of
5.0-5.5% for March-end.
RBI also said industry expanded 10.8% in Apr-Dec, compared with
8.0% year ago.
It said non-food loans remained above 30% and banks' deposits too
grew at 23% up to Feb 2 from a year earlier.
.
Jan 6, 2007: Hiked to 5.5% from 5.25%
Dec 23, 2006: Hiked to 5.25% from 5%
.
The twin hikes were announced on Dec 8 with a view to tighten
liquidity and reign in inflation.
Inflation for the week to Nov 24 was 5.30%, down from 5.45% a week
ago but up from 4.5% a year ago.
The finance minister has been reiterating that inflation needs to
be
checked and that the "tolerance" level for inflation was below 4%.
RBI also cited the year-on-year rise in non-food credit to 30% and
growth in money supply as another reasons for the hike.
India's robust gross domestic growth also prompted the hike, as a
policy measure, RBI said.
The central bank expects to drain around 135 bln rupees from the
banking system through the hike.
.
Oct 2, 2004: Hiked to 5.00% from 4.75%;
Sep 18, 2004: Hiked to 4.75% from 4.50%
.
The two-stage hike of a total 50 basis points was announced on Sep
11, 2004 following a review of liquidity conditions. From Sep. 18, it
would also cut the interest it pays on banks' eligible cash balances
under CRR to 3.5% from 6.0%.
RBI reiterated its medium-term objective to reduce CRR to 3%. The
measures were consistent with the stance of monetary policy, RBI said.
For the previous three -four weeks, the finance minister and the RBI,
including its governor and its latest annual report, had listed
liquidity overhang as among the causes of inflation. WPI inflation for
the week to Aug. 28 was at a 4-year high of 8.33%.
After the hikes were announced, the finance minister said more
steps were likely to control inflation, which he mainly attributed to
supply side factors such as rise in overseas crude oil prices.
.
Jun 14, 2003: Cut to 4.50% from 4.75%
The central bank cut in CRR to 4.50% from 4.75% took effect on Jun
14. The move was announced in the 2003-04 monetary policy. The cut
added around 30 billion rupees to banking system.
.
Nov 16, 2002: Cut to 4.75% from 5.00%
"As a further step in moving towards the statutory level of CRR of
3.0 per cent, the RBI reduced the CRR to 4.75% from 5.00% effective
from the fortnight beginning November 16, 2002. With this reduction,
CRR was reduced by 375 basis points over the past two years.
.
Jun 1, 2002: Cut to 5.00% from 5.50%
The RBI announced a 50-basis-point cut in the banks' cash reserves
as part of its 2002-03 (April-March) monetary and credit policy
announcement on April 29. The RBI had initially scheduled the
effective date of reduction in CRR for June 15. On reviewing liquidity
conditions, it advanced the CRR cut effective date to June 1. The CRR
reduction boosted liquidity by 60 billion rupees.
The RBI said this cut was part of its medium-term objective of paring
the cash reserves to the statutory minimum of 3.0%. The RBI said it
was rationalising the CRR by withdrawing various exemptions given to
banks on certain specific categories of liabilities for CRR
requirement.
.
Dec 29, 2001: To be cut to 5.50% from 5.75%
The second of the two-stage cut in the banks' cash reserve ratio
announced in the central bank's Oct. 22 mid-term review of its 2001-02
(April-March) credit policy takes effect. This cut is set to boost
liquidity by 20 billion rupees. In its credit policy review, the RBI
had rationalised its norms for CRR maintenance. It said except for
interbank borrowings, all other liabilities of banks will require CRR
maintenance. The RBI had also said interest on CRR
maintained with it will be pegged to Bank Rate, currently at 6.50%.
.
Nov 3, 2001: Cut to 5.75% from 7.50%
The first of the two-stage cut in the banks' cash reserve ratio
announced in the Oct. 22 review of the central bank's monetary and
credit policy boosted liquidity by a huge 60 billion rupees.
.
May 19, 2001: CRR cut to 7.50% from 8.00%
This steep cut boosted bank surpluses by 45 billion rupees. The
central bank had not assigned any reasons for the rate cut. The
market, however, interpreted the RBI's action as a way to boost banks'
liquidity amid large outflows to finance the voluntary retirement of
thousands of their employees.
The cut was in line with the central bank's medium term objective of
lowering the CRR to its statutory minimum of 3%.
.
Mar 10, 2001: CRR cut to 8.00% from 8.25%
The second of the two-stage cut in the CRR announced on Feb 16
boosted liquidity by 20.50 billion rupees. The RBI made the cut after
a review of the international and domestic financial markets.
Financial markets, especially the debt market, had been expecting the
Indian central bank to lower the CRR and its key Bank Rate as a sequel
to the interest rate cuts effected by the U.S. Federal Reserve in
January. The CRR cut is perceived as more of a measure to help
softening of interest rates rather than solely aimed at boosting
liquidity. Liquidity in the market was adequate.
Feb 24, 2001: CRR to be cut to 8.25% from 8.50%
The first of the two-stage cut in the banks' cash reserve ratio
announced on Feb. 16 boosted liquidity by 20.50 billion rupees.
.
Aug 12, 2000: CRR to be hiked to 8.50% from 8.25%
The second of the two-stage hike in the cash reserve ratio
announced on July 21 drained interbank liquidity by 19 billion rupees.
On July 21, the central bank also announced a 100 basis points hike in
the Bank Rate to 8.00% and cut banks' loan limits under its refinance
facility by half. This was the third time in fiscal 2000-01 that the
RBI took measures to prevent sharp fluctuations in the rupee's
exchange rate. The central bank's monetary moves sprang a nasty
surprise for many foreign exchange and money market players. The
harsh monetary measures followed RBI's "verbal" intervention on May 25
and June 8, when the rupee had fallen against the dollar in
speculative trade. The RBI had also made explicit its resolve to
prevent, through direct or indirect intervention, any unwarranted
fluctuation in the rupee's exchange rate. On May 25, the RBI had
announced several measures to support the rupee in a similar
situation, including a 50% surcharge on import loans and a 25% minimum
interest on overdue export bills. (These two moves were rolled back
from Jan 6, 2001.)
.
Jul 29, 2000: CRR hiked to 8.25% from 8.00%
The first of the two-stage hike in the cash reserve ratio
announced on July 21 drained interbank liquidity by 19 billion rupees.
.
Apr 22, 2000: CRR cut to 8.00% from 8.50%
The second of the two-stage cut in the cash reserve ratio
announced on April 1 became effective. This cut was in line with the
central bank's medium-term strategy to lower the CRR to the minimum
stipulated 3.00%. The cut boosted banks' liquidity by 36 billion
rupees and was expected to help ensure the government's market
borrowing proceeded smoothly.
.
Apr 8, 2000: CRR cut to 8.50% from 9.00%
The first stage of the cut announced on April 1 became effective.
It was expected to boost interbank liquidity by 36 billion rupees.
.
Nov 20, 1999: CRR cut to 9.00% from 9.50%
The second of the two-stage cut in the CRR announced in the Oct.
29, 1999, mid-year review of 1999-2000 (April-March) monetary and
credit policy of the RBI. This increased banks' liquidity by 35
billion rupees.
.
Nov 6, 1999: CRR cut to 9.50% from 10.0%
The cut was announced in the Oct. 29, 1999 mid-year review of
1999-2000 (April-March) monetary and credit policy of the RBI. This
had increased banks' loanable resources by 35 billion rupees. The RBI
also introduced a lag of two weeks in maintaining the stipulated CRR
as a measure of simplification..
May 8, 1999: CRR cut to 10.0% from 10.5%
The cut announced on April 20, 1999 in the RBI's Monetary and
Credit policy was more of a response to the RBI's assessment of the
prevailing liquidity situation, Governor Bimal Jalan said. The policy
noted that a major challenge was the need to reconcile conflicting
objectives of restraining the overall growth of liquidity in order to
ensure price stability and at the same time facilitating the flow of
bank credit toward productive sectors of the economy to improve
growth.
.
Mar 13, 1999: CRR cut to 10.5% from 11.0%
The cut, announced March 1, 1999, followed Finance Minister
Yashwant Sinha's 1999-00 budget presentation on Feb. 27. RBI Governor
Bimal Jalan said the cut was because of weak inflation, slow credit
off-take and government's lower market borrowing target in 1999-2000.
"The RBI's judgment now is that conditions are right for such a move,"
he said. The RBI also cut the key Bank Rate to 8% from 9% and the
securities repurchase agreements tender rate to 6%
from 8%. On Feb. 27, WPI inflation was 5.26% vs. a peak of 8.84% on
Sep. 27, 1998.
.
Aug 29, 1998: CRR hiked to 11.0% from 10.0%
The CRR was hiked to 11.0% from 10.0% as a "temporary" measure to
absorb liquidity, and reversing cuts a couple of months earlier. The
hike followed a sharp fall in the rupee's exchange rate. On Aug. 20,
1998 it was at a record low of 43.69 rupees per U.S $1.
.
Apr 11, 1998: CRR cut to 10.25% from 10.50%;
Mar 28, 1998: CRR cut to 10.00% from 10.25%
After the Jan 1998 moves established "order" in the rupee market,
RBI followed up a Bank Rate cut with the CRR cut, which boosted banks'
resources by 26 billion rupees. These reversed tightening measures of
January 1998. Later,
the RBI said it would also release in 12 equal installments from May
1998 to
March 1999 two-thirds of balances impounded in May 1991 and Apr 1992
under a
special 10% incremental CRR on net demand and time liabilities.
.
Jan 17, 1998: CRR hiked to 10.5% from 10.0%
The crisis in Southeast Asia turned the Indian rupee volatile,
prompting
the hike in the CRR with other liquidity tightening measures. The hike
came after the rupee fell to the then record low of 40.45 rupees per
US $1 mid-January. The hike drained bank resources by 25 billion
rupees.
.
Dec 6, 1998: CRR hiked to 10.00% from 9.50%
.
Nov 28, 1997: CRR cuts deferred and scrapped subsequently
RBI said it would scrap the following schedule of CRR reductions.
.
* Deferred: Dec 20, 1997 CRR cut by 25 bps to 9.25%
* Deferred: Jan 17, 1998 CRR cut by 25 bps to 9.00%
* Deferred: Feb 14, 1998 CRR cut by 25 bps to 8.75%
* Deferred: Feb 28, 1998 CRR cut by 25 bps to 8.50%
* Deferred: Mar 14, 1998 CRR cut by 25 bps to 8.25%
* Deferred: Mar 28, 1998 CRR cut by 25 bps to 8.00%
.
The RBI deferred the cuts in cash reserve ratio it had announced
earlier
"taking into account the overall liquidity position and the
developments in the
financial markets, in particular, the possible spill-over effects on
the
foreign exchange markets".
.
Nov 22, 1997: CRR cut to 9.50% from 9.75%
.
Oct 25, 1997: CRR cut to 9.75% from 10.00%
The RBI had announced equal eight-stage cuts in the CRR to 8.25%
as part of its October-March credit policy on Oct 21, 1997. However,
volatility in the foreign exchange market prompted the RBI to defer
and subsequently scrap the cuts after the first two stages had taken
effect.
The RBI had said banks would be paid an interest of 4.0% per annum
on all eligible cash balances maintained with RBI to improve the
return on cash balances of banks since the rate was higher than the
earlier effective rate of 3.5%.
Earlier, on April 26, 1997, the RBI exempted banks from
maintaining
reserves on liabilities to banking system. It clarified that in view
of
multiple prescriptions on different categories of liabilities,
including a zero reserve requirement on certain liabilities, effective
CRR and SLR of banks on total demand and time liabilities, including
inter-bank liabilities were not to be less than 3% and 25%,
respectively.
.
Jan 18, 1997: CRR cut to 10.0% from 10.5%.
.
Jan 4, 1996: CRR cut to 10.5% from 11.0%
.
Nov 9, 1996: CRR cut to 11.0% from 11.5%
.
Oct 26, 1996: CRR cut to 11.5% from 12.0%
Cuts were announced in the October-March 1996 credit policy. The
RBI said the cut in CRR should not be viewed only as a response to
short-term developments but it was part of a plan to restructure the
CRR refinance regime through simultaneous reduction in reserve needs
and refinance entitlements. In 1996-97, reflecting various policy
measures, the overall interest rate structure showed a declining
trend. The reduction in interest rates at the shorter end was more
pronounced.
.
Jul 6, 1996: CRR cut to 12.00% from 13.00%
The cut was to boost banks' lendable resources by 41 billion
rupees and was meant to have a positive impact on their profitability.
.
May 11, 1996: CRR cut to 13.0% from 13.5%
.
Apr 27, 1996: CRR cut to 13.5% from 14.0%
The cuts, announced in the RBI's Apr-Sep credit policy on Apr 3,
1996, were framed so that banks had resources to keep up the momentum
of credit flows to support output. The 1996-97 policy was aimed to
consolidate "the hard-won gains" against inflation in 1995-96. Cuts
boosted banks' resources by 38 billion rupees. The policy aimed at a
1996-97 M3 expansion at 15.5-16.0% and a bank credit expansion of
20.0%.
.
Dec 9, 1995: CRR cut to 14.00% from 14.50%
Cut was to boost liquidity to meet growing credit needs "in
response to high gross domestic product growth". In 1995-96, GDP
growth was 7.2%.
Nov 11, 1995: CRR cut to 14.50% from 15.00%
Cut in CRR was on the backdrop of a sharp rise in call money
rates, which had risen after the RBI's exchange market interventions--
buying rupees against dollar sales--in October 1995. These moves
drained liquidity. "Given the buoyant demand for credit for supporting
real activities, there was a need for liquidity injection," the RBI
said. The rupee was around 35 rupees per $1 until mid-Jan 1996.
.
Aug 6, 1994: CRR hiked to 15.00% from 14.75%
.
Jul 9, 1994: CRR hiked to 14.75% from 14.50%
.
Jun 11, 1994: CRR hiked from 14.00% to 14.50%
.
May 1991 until April 1993, the CRR was at 15%. In April 1993, it
was
revised down for the first time since 1982. More cuts brought it to
14%. In the April-September 1994 credit policy, it was hiked to 15%.
RBI Governor C. Rangarajan said while the medium-term plan was to
reduce CRR, "if the primary money creation is excessive", the RBI
would not "hesitate to deviate temporarily from the medium term
strategy and raise the CRR to neutralise large monetary expansion".
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