After CRR, will interest rates rise?

The Finance Minister P Chidambaram said he does not expect an increase in the lending rates any time soon.

Briefing reporter after a meeting with PSU ban heads, the finance minister has said bankers were happy that the RBI had changed the Cash Reserve Ratio (CRR) and left the policy rates untouched.

The finance minister said loan growth by banks is likely to be slightly higher than the projection of 20 per cent by the RBI.

The RBI took anti-inflationary measures to bring the inflation under control and there were expectation from the banker that in this process the RBI may change the interest rates.

In its annual policy, RBI has increased the Cash Reserve Ratio which would result to drain liquidity system by Rs. 9,000 cr.

The policy is clear – an inflation was defined by best economists as ‘too much of money chasing too few goods’.

The central bank has tried to check the credit flow through the Cash Reserve Ratio, as banks need to keep Cash Reserve Ratio  as per the RBI direction, which would help to check the credit flow in the nation. And ultimately, it may help to check the supply of money into the market.