Rupee’s uptrend may compel RBI to use unusual cash mechanism

India Infoline News Service | Mumbai | March 20, 2017 16:46 IST

The banks being flooded with funds, and to add to it, the rise in value of Rupee may now influence the RBI to use a rarely administered cash mechanism before the upcoming policy analysis.

The banks being flooded with funds, and to add to it, the rise in value of Rupee may now influence the RBI to use a rarely administered cash mechanism before the upcoming policy analysis.
 
The central bank might think of increasing the CRR i.e. Cash Reserve Ratio, for the first time since 2010, in case deposits collected do not spill over in the coming months because of November’s cash ban, an Economist stated.
 
As per Bloomberg Intelligence India Banking Liquidity Index, as of now, banks are holding about Rs 5 trillion ($76 billion) of additional cash, which is limiting the RBI’s ability to buy dollars, and also to restrict rupee's gains, in order to skip further growing liquidity.
 
The chief economist at IDFC Bank Ltd., Indranil Pan, said that if the excess liquidity becomes permanent, the RBI may call on a CRR hike.
 
The Cash Reserve Ratio is amount of deposits which is compulsory for the banks to maintain with RBI, and it was raised seven years back in 2010 when India had recorded higher foreign inflows.

Disclaimer: The contents herein is specifically prepared by ‘Dalal Street Investment Journal’, and is for your information & personal consumption only. India Infoline Limited or Dalal Street Investment Journal do not guarantee the accuracy, correctness, completeness or reliability of information contained herein and shall not be held responsible.

 

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