RBI measure signals banks to moderate credit growth: FinMin

The Finance Ministry today said the hike in repo rate and cash reserve requirement is a signal to banks to moderate credit growth to contain inflation.

“The government expects that the measures taken by the Reserve Bank of India today, in continuation of the measures already taken over the last two months, will help in moderating and containing inflation,” the Ministry said in a statement today.

The RBI's decision to increase repo rate by 50 basis points and cash reserve requirement by 25 basis points will put pressure on margins of banks, who may pass on the cost to borrowers. The increase in cash reserve requirement impounds funds available with the banks. The repo rate is the rate at which banks are allowed to access funds from the RBI for liquidity adjustment.

“The increase in the CRR and the Repo rate is a signal to the banks that credit growth must be moderated, having regard to the need to moderate aggregate demand,” the statement added.

It advised the banks to carefully appraise loan requests and ensure that adequate credit is available to the productive sectors.

Yesterday, in its first quarter review, the RBI had noted that “potential inflationary pressure from international food and energy prices are likely to remain so for some time.”


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