The Reserve Bank of India on Friday increased the cash reserve ratio by 75 basis points to 5.75 per cent in a bid to suck excess liquidity to battle rising inflation.

However, the apex bank kept its short-term lending and borrowing rates unchanged. Though the CRR hike will drain Rs 36,000 crore from the banking system

The cash reserve ratio is the portion of deposits that commercial banks are required to keep with the central bank and a cash reserve ratio increase would help drain out some of the excess liquidity in the system. 

The hike in the cash ratio will be done in two phases. The first phase of the CRR hike of 50 bps will be effective from February 13 while the second stage of the hike of 25 bps will be effective from February 27.

The central bank has also raised its FY10 GDP forecast to 7.5 per cent as against 6 per cent earlier while increasing its inflation projection for the year to 8.5 per cent from 6.5 per cent. The bank also noted that the third-quarter growth would be lower as compared to the previous quarter when the economy expanded by 7.9 per cent. The central bank has noted that it expects inflation to moderate from July onwards.

RBI has also cut the loan growth projection to 16 per cent from 18 per cent. Its GDP projection assumes near zero growth in farm output. 

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