CRR’s relevance should not be overlooked

.....In his article “An MRI on health of the economy” (Business Line, September 7) noted economist and former RBI Deputy Governor S. S. Tarapore has already explained this aspect. He had shown how payment of interest on CRR would make it ineffective as a monetary policy instrument. There could be situations when interest payments will exceed incremental funds impounded through CRR in a year, and overtime, the spiralling effect will damage the RBI’s balance-sheet. Moreover, the prevailing fiscal position of the Government also warrants not paying interest on CRR balances. If the RBI is saving Rs 21,000 crore as suggested by Chaudhuri, the entire amount will be transferred to the Government as part of the RBI’s profit......

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