India’s central bank hikes cash reserve ratio to fight inflation

MUMBAI, April 29, 2008 (AFP) – India’s central bank on Tuesday held key interest rates steady but hiked the percentage of cash banks must hold in reserve to 8.25 percent to curb inflation riding at over three-year highs. It was the second time the Reserve Bank of India had announced an increase in the cash reserve ratio (CRR) in two weeks as it seeks to suck out excess liquidity in the banking system and check inflation now at 7.33 percent.

The CRR is the amount of money commercial banks must park with the central bank.

“Since January 2008, risks to inflation due to pressures from high global food, crude and metal prices have become more potent and real than before,” the central bank governor Y.V. Reddy said in the bank’s annual policy statement.

“Potential inflationary pressures from international food and energy prices appear to have been amplified and by current implications, are likely to remain so for some time,” he added in a statement.

On April 17, the bank hiked the cash reserve ratio by 50 basis points to 8.0 percent to tackle inflation, which has more than doubled from just four months ago, and is far above its tolerance level of five percent.

The Reserve Bank of India kept its repo rat