Page 312 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Unit 14: Financial Regulations

Notes


Caselet CRR Hike Slightly Aggressive: Economists

conomists were "slightly surprised" by the extent of the cash reserve ratio (CRR)
hike (of 0.75 per cent) but felt that the Reserve Bank's move was strongly influenced
Eby rising inflationary pressures and the compelling need to rein them in.
"The market was expecting a 0.50 per cent hike in CRR and I feel the 0.75 per cent is slightly
aggressive. It is more a pre-emptive move to control inflationary expectations," Bank of
Baroda's Chief Economist, Rupa Rege Nitsure, told PTI here.
The Reserve Bank today upped the cash reserve ratio from 5 per cent to 5.75 per cent, a
move expected to flush out ` 36,000 crore from the system. It also pegged expected inflation
by March end at 8.5 per cent, sharply up from its earlier projection of 6.5 per cent. "The
move is targeted at combating the liquidity over hang in the system," Nitsure said.
Crisil's Director and Principal Economist, D K Joshi, said, "today's move is a clear
enunciation that inflation has emerged as a major concern for the RBI. This is clear from
the fact that the apex bank hiked CRR by 0.75 per cent instead of by the widely expected
0.50 per cent."

While interest rate pressures are seen, there may not be an immediate increase in rates, the
economists said.

Source: www.thehindubusinessline.com

Self Assessment

Fill in the blanks:
11. ………………………….are controls on consumer credit or credit flowing in to the various
sectors of the economy.
12. …………………….also use direct controls, moral suasion and others to influence the credit
by banks and other financial institutions.

13. ………………..is the standard rate of discount charged by the Central Bank of the country
to eligible parties.
14. The efficacy of bank policy in India is limited because of the multiplicity of refinance rates
and the relative low elasticity of savings and investments to…………………... .
15. ……………………..are an important instrument of monetary policy and refer to the
purchases and sales by the Central Bank of government securities, treasury bills, gold,
foreign exchange etc. in India.

Task Visit RBI website regularly to have a better understanding of the periodical updating
of the measures initiated by it.

14.4 Summary

 The SEBI Act was enacted to establish the SEBI to protect the interests of investors and
develop and regulate securities market. The SEBI has been vested with vast powers by the

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