The instrument used has been the CRR or the cash reserve ratio. This ratio, at which banks maintain cash with RBI (as a percentage of their deposits), has been hiked by 0.75%. It is meant to suck out liquidity to the tune of Rs 360 bn. The hike will, in two stages, bring the CRR from 5% currently to 5.75% by the end of February 2010.
This watershed event marks the bottoming out of the easy liquidity scenario which unfolded since late 2008. As the RBI in its own confession remarks about the divergence in inflation number at the wholesale (WPI) and consumers’ level (CPI), such a move is well understood. The widely circulated WPI number has been giving a benign impression of the trend in price rises. The rise at the consumer’s level has, however, been relatively steeper. Thereby causing change in consumption patterns.
