CRR hikes could be reversed

The rate decisions of the Reserve Bank of India (RBI) and the Federal Reserve dominated last week. The Indian central bank did not change its repo and reverse repo benchmarks, but increased the CRR to 7.5 per cent from 7 per cent, while the Fed snipped its rates 25 basis points. Overnight money market surpluses have dwindled to less than Rs10,000 crore. Coupling the impounded CRR and the reluctance of the Government to spend ahead of the financial year close, it would seem liquidity is set to tighten in the coming days and weeks. There is every possibility of the US economy sinking into the red this quarter itself. Further rate cuts are unavoidable. That might halt the RBI on its tracks. Reversing the series of CRR hikes, at least partly, is distinctly likely if liquidity contracts too much and call rates spill well out of the RBI’s corridor on the upside.