The Reserve Bank's decision to cut cash reserve ratio (CRR) by half a percentage point will boost the economic growth by increasing liquidity in the system and reducing cost of fund, the Finance Ministry said today.
"CRR cut ensures that fair amount of money is available, the cost of fund is reduced ... All these things are good to create a growth enhancing impression," Economic Affairs Secretary R Gopalan told reporters here.
He said the third quarter monetary policy also indicates that the interest rate cycle has peaked and there is a recognition that growth has to be now fostered.
The CRR, the amount of deposits banks are required to keep with RBI in cash, has been reduced to 5.5 per cent from 6 per cent with effect from January 28, releasing Rs 32,000 crore in the system to ease the liquidity problems.
RBI expects the economic growth to be 7 per cent this fiscal, but Gopalan said the third quarter GDP numbers, which are yet to be released, would give an idea about the growth for whole 2011-12 fiscal.
"The (GDP) numbers should give us an idea of what the growth for whole year is going to be," he said. The third quarter economic growth figures would be released next month.
The economic growth slowed down to 6.9 per cent in the second quarter of the fiscal from 8.4 per cent in the same period last fiscal.
On the year-end inflation, Gopalan said it is likely to be 7 per cent or even slightly lower than that.