CRR cut to ease fund constraint, says industry

India Inc said on Tuesday the Rs 32,000-crore (Rs 320-billion) additional liquidity in the system as a result of half a percentage point cut in cash reserve ratio will help in easing fund constraint being faced by the industry.

"The move by the Reserve Bank to cut CRR by 50 bps to 5.5 per cent is a very welcome measure.

"It will help ease liquidity situation in the banking system which has remained tight since November 2011," CII Director General Chandrajit Banerjee said.

Cash reserve ratio is the amount of funds banks need to park with the apex bank in cash.

Asscoham said additional liquidity would help the sector to fund viable projects held up due to liquidity crunch.

"The focus (of the RBI) is now shifting from controlling inflation to restoring growth momentum as liquidity in the system

eases further," Assocham's secretary general D S Rawat said.

This is a bold step to rein in inflation and address concerns over growth which are now taking centre-stage with the gross domestic product growth rate likely to touch 7 per cent in 2011-12, he said.

The shift in stance, industry associations believe, might reflect on the repo rates as well from here on, which would help in fueling the weakened investment cycle.

"Given the uncertain growth prognosis for the current fiscal, a cut in repo rate may have acted as a strong enabling factor in spurring investment activity," Federation of Indian Chambers of Commerce and Industry president R V Kanoria said.

The country's growth took a beating in recent times as a result of tight monetary policy stances taken by the Reserve Bank to contain inflation.

RBI had raised headline interest rates cumulating to 375 bps since March, 2010.