The restoration of the informal LAF corridor should help in stabilising overnight rates and smoothing volatility. The key policy rates have been kept unchanged. The cash reserve ratio has been raised by 50 basis points to 7 per cent in the first quarter review with a view to impounding liquidity generated by excessive deposit growth in the banking system.
The CRR is expected to work in conjunction with the restoration of the LAF corridor to ensure appropriate liquidity conditions in the economy. The policy stance will be under careful and continuous review and the mix of instruments will be modulated by the evolving situation.