Chairman to the Prime Minister’s economic council and former RBI governor, C Rangarajan, said CRR should be used as a tool to control credit only in ?extraordinary circumstances? as open market operations become an increasingly major instrument to control liquidity.
The argument would be seen as a support for State Bank of India’s chairman Pratip Chaudhuri?s call for CRR being abolished for which he was snubbed by KC Chakarbarty, the deputy governor of RBI. Cash Reserve Ratio (CRR), which is the percentage of deposits that a bank needs to keep with the central bank without getting any interest in return, currently stands at 4.75%. ?All that I would say at this particular time is that we need to move towards the situation where the level of CRR comes down and it is used as an instrument of credit control only in extraordinary circumstances,? Rangarajan told reporters at the sidelines of the banking conference, where CRR made headlines since the opening day. On the opening day, D Subbarao, the RBI governor, taking a dig at Chaudhri’s comments on CRR, had jokingly said that he will form a committee, of two members, to discuss the CRR issue but will assure that the conclusion of the committee is not submitted during his tenure.
?You should look at the evolution of CRR in this country, prior to 1991it was a major for credit control. But at the time of the banking sector reforms we took a conscious view that we will reduce the CRR and therefore CRR has been progressively brought down,? Rangarajan said. He also said India’s GDP will pick up in the second half of the fiscal and will be around 6.7%. He said the growth rate of 8% will comeback in two years. He also expects inflation to cool off by the end of the fiscal as monsoons were not as bad as expected and does not fear further downgrade by ratings agencies like S&P and Fitch.