New Delhi: Amidst rising inflation there is finally some good news for the common man. RBI has slashed Cash Reserve Ratio (CRR) by 75 basis points at one go.  With the decision of the Reserve Bank of India (RBI), there is all possibility of a cut in interest rates on home loans including other loans.

With the RBIs move just before the union budget of 2012-13, banks will be having additional Rs 48,000 crore with them. This decision is considered to be very important from the perspective that mid-term review of monetary policy by RBI is due in the next week on March 15. But the RBI has announced CRR cut in advance.

The RBI has slashed present CRR of 5.5 percent to 4.75 percent. Earlier to this RBI had announced cut in CRR by 0.5 percent in the review of monetary policy on January 24. CRR is the ratio of the total deposited amount in the banks that needs to be kept with the RBI.

RBI’s CRR cut will be effective from Saturday. Central bank has said that the decision on CRR cut has been taken to let the banks get rid of liquidity crunch. It is considered that from the second week of March, there will be increase in the outflow for advance tax from the banks leading to liquidity crunch. Last date for Advance tax payment is March 15 and the expected outgo will be around Rs 60,000 crore. In clear terms this amount will be transferred from the accounts of banks to the government’s account leading to liquidity crunch for the banks. But with the cut in CRR, banks will be having additional amount to its disposal, encouraging them to cut lending rates.

To increase liquidity in the banking system, RBI has arranged additional Rs 80,000 crore since January.  RBI has cut CRR by 1.25 percent in last two months. CRR rate has been reduced from 6 percent in January to 4.75 percent.

Along with the CRR cut, RBI has continued their Open Market Operations (OMO) and from this Rs 1.24 lakh crore has been infused into the market. Out of this Rs 52,800 crore has been infused after the release of third quarter review. Banks are being struggling with liquidity crunch and on the average Rs 1 lakh crore has been raised on a daily basis from the central bank in last few days.  On March 1, the amount of debt under this plan has been raised to Rs 1.91 lakh crore. However, it dropped to Rs 1.27 lakh crore by March 7.