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The RBI governor Dr. Subbarao surprised the Finance Minister P. Chidambaram today by reducing the cash reserve ratio (CRR) instead of the expected repo rate. Is this some sign of RBI acting independently? Is reduction in CRR is enough to ease liquidity and yet not contribute to inflation? How does the work anyways? Do changes in CRR matter at all? While all these are interesting questions and I plan to delve into them over time, I thought this following graph should be interesting.

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