Though the buzz of a cut in the cash reserve ratio is doing the rounds among dealers, economists expect the Reserve Bank of India to hold the policy rates as well as the CRR during the mid-quarter review of the monetary policy scheduled for Friday, December 16.
Experts say the central bank will refrain from using the CRR as a liquidity tool, as a reduction in the rate will go against its current anti-inflationary stance.
CRR is the proportion of deposits banks need to set aside with the central bank as cash.
It is currently six per cent of the net demand and time liabilities.
"Latest comments from the RBI indicate the CRR is also a monetary policy tool, and reducing it would signal a reversal of its monetary policy stance.
"To avoid sending such a signal but
RBI deputy governor Subir Gokarn indicated as much when he said last week, "CRR is not just a liquidity tool, but also a monetary policy signal and we are, as of now, still in a situation where inflationary pressures are high."
The rupee, which has depreciated around 17 per cent this year, has added to inflationary pressure as the country imports nearly 80 per cent of its oil requirement.
Headline inflation has hovered around the double-digit mark for 20 months despite a series of rate hikes by the RBI.
The central bank has raised the key policy rate 13 times since March 2010, with effective tightening of 375 bps.
