RBI cuts cash reserve ratio

By Our Special Correspondent

MUMBAI, MAY 12. The Reserve Bank of India has reduced the cash reserve ratio (CRR) by half a percentage point to 7.5 per cent effective from the fortnight beginning May 19.

``This measure will release resources of scheduled commercial banks to the extent of about Rs. 4,500 crores,'' stated an RBI release issued here today. The central bank announced this ``after a review of current liquidity position and developments in the financial markets.''

Meanwhile, the RBI has also taken measures to activate the secondary market in Treasury Bills. With effect from May 14, the auctions of 14 and 182 days Treasury Bills will be discontinued. The notified amount in the auctions of 91-Day Treasury Bills will be enhanced from Rs. 100 crores to Rs. 250 crores. The notified amount in the auctions of 364-Day Treasury Bills will continue to be Rs. 750 crores.

It may be recalled that the Monetary and Credit Policy for 2001- 02 announced that the present 14-Day Treasury Bill and 182-Day Treasury Bill auctions are proposed to be discontinued and instead, the notified amount in the 91-Day Treasury Bill auctions will be increased to Rs. 250 crores.

The auctions of 91-Day Treasury Bills will now be conducted every Wednesday with payment on the following Friday and the auctions of 364-Day Treasury Bills will be conducted on Wednesdays preceding the reporting Friday with payment on the following Friday.

The RBI stated that it was proposed to synchronise the date of payment for both 91-Day and 364-Day Treasury Bills. It added, ``as such, both the 91-Day and 364-Day Bills will mature on same days and together they can provide adequate fungible stock of Treasury Bills of varying maturities in the secondary market. The market clearing yields and the increased floating stock which are fungible are expected to activate the secondary market in Treasury Bills.''

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