India's central bank hikes cash reserve ratio to fight inflation

India's central bank on Tuesday hiked the amount of cash banks must hold in reserve for the second time in two weeks, as it struggles to tame inflation in Asia's third-largest economy.
In an unexpected move, The Reserve Bank of India raised the cash reserve ratio (CRR) by 25 basis points to 8.25 percent to reduce cash available for loans and try to check inflation now around three-year highs at 7.33 percent.
Since January, "risks to inflation due to pressures from high global food, crude and metal prices have become more potent and real than before," central bank governor Yaga Venugopal Reddy said in the bank's annual policy statement.
"Potential inflationary pressures" from global food and energy prices had amplified, he added, warning the bank stood ready to "act decisively, effectively and swiftly to curb... adverse developments."
On April 17, the central bank hiked the CRR by 50 basis points to 8.0 percent, draining some 4.6 billion dollars from the banking system, to tackle rising prices.
Inflation has more than doubled from just four months ago, and is far above its tolerance level of five percent.
The latest decision, which will remove over two billion dollars from the banking system, came as Prime Minister Manmohan Singh said reining in prices was the "immediate challenge" facing the nation.