Reserve-requirements, the CRR...

The case for maintaining 30% of the CRR in foreign-exchange and gold will ultimately improve liquidity and money supply to the economy because we (banks) are, now, less required to maintain domestic currency... It will increase domestic liquidity, by the same, 30%... (And, with supply-constraints it is likely to increase inflation)... When money-supply-improves it affects the long-run-rates which ultimately guide short-run-changes... Thus, a 30% increase in money-supply will also reduce market rates around 30% in the medium-term... For-example, if interest-rates are near 10%, a 30% increase in money-supply, will reduce rates by atleast 3%, to 7%... So, it is almost equivalent to reducing interest-rates... RBI (i think) in a good-spirit does not want sacrifice macro-economic stability at this cross-road... However, RBI’s fear that a strong-rupee will deteriorate the situation is baseless... Because, when your currency becomes strong it also depreciates the reserve-currency which is actually a again, actually it is a kind of speculation, gold (too)... But, again, when you have so much big presence in the market, protected by tariffs, you can actually affect the prices or real-prices... By just moving the threshold (30%)( up-and-down) it can affect demand and supply and ultimately the price of our reserve-currency and gold as per the RBI’s requirements to shape expectations... No central-bank is run for private business... it is run for price-stability and full-employment...