The Reserve Bank of India (RBI) has been advised to calibrate the reversal of the incremental cash reserve ratio (ICRR) in response to "high temporary inflation", as per a statement by Deutsche Bank (ETR:DBKGn) on Wednesday. This suggestion comes in the wake of an anticipated tightening of the system's liquidity, which could warrant a complete reversal at a later stage.
The recommendation was part of a report authored by Kaushik Das and released on Tuesday. The report suggested that a measured approach towards reversing the ICRR could be justified, especially during periods marked by a temporary spike in Consumer Price Index (CPI) inflation.
In August, the RBI had mandated all scheduled banks to maintain an ICRR of 10% on any increase in their net demand and time liabilities. This measure was implemented as a temporary solution, with an upcoming review scheduled on or before September 8. Meanwhile, the existing cash reserve ratio (CRR) remains unchanged at 4.5%.
The proposed calibration of the ICRR is seen as a potential strategy to manage the current economic climate characterized by high temporary inflation. However, the final decision will be contingent on the RBI's assessment during its forthcoming review.
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