Indian Discussion Forum

The Reserve Bank of India today increased mandatory cash reserve of banks held by it by 75 basis points in a bid to suck excess liquidity to combat rising inflation.

However, short-term lending and borrowing rates between RBI and banks were kept unchanged, leading to speculation that banks' commercial lending rates may not change.

The apex bank also upped its economic growth projection to 7.5 per cent from its earlier estimate of 6 per cent for the current fiscal.

The 75-basis point increase in cash reserve ratio to 5.75 per cent is expected to suck out at least Rs 36,000 crore from the system. The move is to check food inflation spreading to other sectors.

According to RBI estimate, inflation is likely to touch 8.5 per cent by this fiscal-end from over 7 per cent in December.