Predictable pause, and a CRR surprise

Rates on hold; 10% incremental CRR to suck ₹1 tn out of market

- Gopika Gopakumar

The Reserve Bank of India’s (RBI’s) monetary policy committee (MPC) on Thursday kept the policy rate and stance unchanged for the third time in a row, citing the need to watch the evolving inflation trajectory amid adverse weather conditions.

All MPC members voted for a pause in the repo rate at 6.5%. Five out of six members also voted for a continuation of the “withdrawal of accommodation" stance.

However, in an unexpected move, RBI announced a 10% incremental cash reserve ratio (CRR) for banks on the increase in their net demand and time liabilities (NDTL) between 19 May and 28 July. This is primarily to address the liquidity overhang due to the withdrawal of ₹2,000 notes. This measure is similar to the 100% incremental CRR introduced between 26 November 2016 and 10 December 2016, following the demonetization of high-value notes.