RBI hikes CRR to stem rupee fall - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

RBI hikes CRR to stem rupee fall

Jul 21, 2000

The Reserve Bank of India (RBI) on Friday sent out the strongest possible signal for an upward movement in interest rates across the spectrum by hiking the cash reserve ratio (CRR) by 50 basis points and benchmark bank rate by 100 basis points. The 50 basis point cut is expected to suck out over Rs 3,800 crore from the banking system. The central bank has taken such a drastic measure to stem further fall in rupee against dollar. It had the desired impact on the forex market as a few quotes were available at 44.70/75 against the dollar as compared to the intraday high of 45.05 against the dollar. The rupee is expected to open between 44.70/75 against the dollar on Monday. According to forex market sources, the rupee was quoted at 44.70/72 against dollar after the rate cut announcement however not many deals took place at that level.

The move will have an adverse impact on the government's borrowing programme for the current fiscal. The centre has so far only managed to raise 35% of its targeted borrowing for the current fiscal.

"This is an unexpected move. It is a cause for concern since the RBI had reduced interest rates a few months ago. This does not spell good news for the stock market," said a forex dealer from a foreign bank.

The RBI, in a statement issued after the forex market closed, hiked the bank rate to eight percent from seven with immediate effect. It also tightened liquidity by raising the cash reserve ratio by 50 basis points. "The action was in response to developments in international and domestic markets, and the foreign exchange market," said the RBI statement.

The central bank has hiked CRR in two stages effective from July 29 and August 12 respectively to 8.50%. The bank rate has been raised to 8% (7%) with effect from July 21. RBI has also reduced the refinance available to banks under the collateralised lending facility by 50% of their eligible limits in two stages. This would come into effect in two stages of 25% each effective from July 29 and August 12.

The rupee, which dipped to an intra-day low of 45.075 per dollar, finally closed at 45.025/03 per dollar today. Heavy corporate demand for dollars coupled with foreign institutional investors making heavy sales in the Indian capital markets are cited as the reasons for this fall in the rupee.

Equitymaster requests your view! Post a comment on "RBI hikes CRR to stem rupee fall". Click here!


More Views on News

BSE Sensex Surges 510 Points; ONGC Among Top Gainers (Market Updates)

Sep 28, 2020 | Updated on Sep 28, 2020

The BSE Sensex Surged 510 Points; ONGC Among Top Gainers. Find the latest update, special reports and news on all time high gainers of BSE Sensex at equitymaster.com.

Data is the New Oil but It's Also the New Sugar. Here's How to Fight it (Profit Hunter)

Jun 1, 2020

Is too much data hurting your quest for market beating returns?

Quantum Mutual Fund: Hum woh nahi hain (The Honest Truth)

Apr 29, 2020

Ajit Dayal on how the mutual fund industry robs you of your wealth.

This One Trigger Could Turnaround Yes Bank's Stock Price (The 5 Minute Wrapup)

Oct 16, 2019

If Yes Bank manages to do this, it could be the start of a much-needed turnaround for the bank.

Gold could Hit 40,000 Sooner Than Expected (Profit Hunter)

Aug 16, 2019

Domestic gold prices are firing on both engines now. Gold prices could touch 40,000 faster than you could imagine.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms