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Shaktikanta Das adopts a more pessimistic tone and raises CRR to drain excess cash worth over Rs 1 lakh crore

<p>The Reserve Bank increased the cash reserve ratio by an additional 10% on Thursday in accordance with the liquidity of the banks, a move that would drain more than Rs 1 lakh crore from the system.<img decoding=”async” class=”alignnone wp-image-122053″ src=”https://www.theindiaprint.com/wp-content/uploads/2023/08/theindiaprint.com-shaktikanta-das-adopts-a-more-pessimistic-tone-and-raises-crr-to-drain-excess-cash-worth-over-rs-1-lakh-crore-download-2023-08-10t165309.760-11zon.jpg” alt=”theindiaprint.com shaktikanta das adopts a more pessimistic tone and raises crr to drain excess cash worth over rs 1 lakh crore download 2023 08 10t165309.760 11zon” width=”1241″ height=”735″ srcset=”https://www.theindiaprint.com/wp-content/uploads/2023/08/theindiaprint.com-shaktikanta-das-adopts-a-more-pessimistic-tone-and-raises-crr-to-drain-excess-cash-worth-over-rs-1-lakh-crore-download-2023-08-10t165309.760-11zon.jpg 292w, https://www.theindiaprint.com/wp-content/uploads/2023/08/theindiaprint.com-shaktikanta-das-adopts-a-more-pessimistic-tone-and-raises-crr-to-drain-excess-cash-worth-over-rs-1-lakh-crore-download-2023-08-10t165309.760-11zon-150×89.jpg 150w” sizes=”(max-width: 1241px) 100vw, 1241px” title=”Shaktikanta Das adopts a more pessimistic tone and raises CRR to drain excess cash worth over Rs 1 lakh crore 3″></p>
<p>According to Reserve Bank Governor Shaktikanta Das, the action, which was announced simultaneously with the bimonthly policy review, was the right course of action given the present situation and there is adequate liquidity in the system for the banks to continue their lending activities.</p>
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<p>The RBI Monetary Policy Committee (MPC) unanimously decided to maintain the repo rate at 6.50%, but for a limited time until September 8 they increased the cash reserve ratio (CRR) on the increased NDTL (Net Demand and Time Liabilities) over the previous three months to 10%, thereby reducing the money supply.</p>
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<p>“The move will suck out a little over Rs 1 lakh crore of excess liquidity from the system,” Das said.</p>
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<p>According to the most recent statistics, the excess liquidity in the system reached a 14-month high in August, reaching Rs 2.48 lakh crore, the highest level since June 2022.</p>
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<p>The planned September 8 review, according to Michael Patra, Das’ deputy and director of the monetary policy division, would only be data-dependent.</p>
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<p>If the spiraling vegetable prices spread and become more widespread, forcing us to use any effective tool at our disposal to control them—which may not just be a rate hike—we will have to act quickly and move beyond Arjuna’s eyes, Das warned.</p>
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<p>The Governor continued, saying, “The work on inflation is still not finished. Amid fluctuating global food and energy costs, ongoing geopolitical tensions, and weather-related uncertainty, inflationary threats continue.</p>
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<p>Over 90% of the Rs 3.6 lakh crore in Rs 2,000 banknotes that were taken out on May 19 have returned to banks, according to Das, which is one of the causes of the increase in liquidity.</p>
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<p>He promised that neither the general population nor the system or industry would experience any financial hardship as they got ready for the lengthy holiday season or as they tried to pay the advance tax (on September 15) or GST (on September 20).</p>
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<p>We conducted an internal analysis, and the results indicated that the financial sector would still have enough liquidity, according to Das.</p>
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<p>For the third session in a row, the Reserve Bank-led MPC held the benchmark interest rate steady at 6.50 percent, but it also hinted at tighter monetary policy should inflation go up due to increasing food costs.</p>
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<p>The MPC maintained its “withdrawal of accommodation” position, although Das came off as hawkish when he said that headline inflation has to fall persistently below 4% and that any increase in the inflation print, if it persists for an extended period of time, may call for further action.</p>
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<p>“Bringing headline inflation within the tolerance band is not enough; we need to remain firmly focused on aligning inflation to the target of 4.0 percent,” the Governor said.</p>
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<p>Due to pressure from rising food costs, the central bank has increased its inflation projection from 5.1 to 5.4 percent. It predicts inflation to reach 6.2% in the third quarter, which is much higher than the prior prediction of 5.2%.</p>
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<p>He explained the MPC’s decision, which drew confidence to leave the rates unchanged from moderation in core price prints and expects a seasonal correction in food prices in the fourth quarter of 2023. “We do look through idiosyncratic shocks, but if it shows signs of persistence, we have to act,” he said.</p>
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<p>The RBI also maintained its GDP forecast at 6.5% for the current fiscal year, citing continued strong aggregate demand.</p>
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<p>In response to a query on whether it would also take into account the effects of HDFC and HDFC Bank’s merger, Das said the decision applies to all scheduled banks.</p>
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