CRR hike & its effects

For those who don't know what is CRR. It stands for Cash Reserve Ratio
It is the min amount of cash & deposits that all the banks must park with RBI. This is being done inorder to safeguard the investors incase of any issues with Bansk's lending amounts.
So generally as the banks get more deposits, the CRR amount with RBI tends to increase. But this yr when compared to last yr, the Banks are attracting only less deposits havin this as a situation, the RBI is planning to hike the CRR from its current level of 7.5 %.. This will have a very big impact on the Banks' profits as thier lending amounts have been squeezed.

How CRR hike will control Inflation???
Now we are very much aware that CRR hike will obviously suck out the excess liquidy from the system... ( 0.5 % hike in CRR will suck out 13,500 crores from the system)
As the liquidty has been squeezed, it will excise more pressure on the demand side so obviously the demand for the products will tend to come down, so is the inflation But we are failing to understand one point in this entire issue that the Inflation this time has been caused due to Supply constraints and not due to Demand pressure so my personal opinion is that any monetary action will hardly have any impact on controlling today's inflation unless we improve the supply situations.

Dr. Manmohan down with Inflation.....

Having Karnataka assy election by next month, Inflation is topping at 7% Congress in centre is really worried about the state elections which are due by this yr...

Karnataka is one among the states which are worst affected by this Inflation.... BJP is expected to use this as a tool and garner votes... FinMin's populous budget went for a toss by not able to control the inflation.... while we need to understand that this is a global scenario and not only restricted to India .... Eventhough Inflation was at peak last yr, we made ourselves cool stating that Inflation is common phenomena when Economy is under booom.

As RBI is getting ready to fight the inflation by the way of CRR hike and interest hike making the Banks to reduce their lending amounts. My personal opinion is that the we need to improve the supply conditions rather than tightening the demand pressures as this might obviously leads to Lower growth...

Our growth rate is projected at 8.4% compared to robust 9.4% last yr due to monetary tightening which ultimately will leads to less growth.......

Be happy our inflation is only hovering arnd 7%....China's is at 9%...

Even as the top economists are leading our country with higher growth trajectory, they are less
likely to have a 2nd chance....