With RBI hiking the CRR from 5.5% by a whole 50bps to 6%, the commercial banks in India are already scratching for options. The CRR is the cash reserve that all commercial banks will have to maintain with the RBI for their operations like lending and mobilizing deposits. The CRR, sadly does not attract any interest as a result the commercial banks will have to mobilise deposits to that tune, pay an interest to the depositors, and then obviously increase their lending rates.
The impact on the CRR hike definitely is not only on the stock markets as we have witnessed in the past few days with the banks uffering the most, but also in real life like performance of the banks, real estate, cement industry, steel, automobile sector and what not? A hike in lending rates, for home loans, which is already close to 12% by private sector banks is imminent and so are personal loans, auto loans, etc. This will definitely be a tool to curb the runaway inflation which stands at 6.5% currently but this will also put a check to the improving lifestyle of the commons.
The big question here is, was CRR hike the only way to curb inflation? Are we out of options? The answer, to my mind is NO! The government must have definitely put in its heads together to control exports of consumer goods and open up imports to ease the situation rather than hike CRR which now seems to have a bigger impact!
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