The RBI hiked Cash Reserve Ratio, the amount of depositors’ money that banks need to park with it, by half a per cent to tighten money supply as part of concerted efforts with the government to ease inflation. The CRR would be hiked by 0.25 per cent from April 26 (taking CRR to 8%) and by an identical percentage from May 10.

The unscheduled hike comes ahead of RBI’s annual credit policy for 2008-09 to be unveiled on April 29. The measure would suck out liquidity to the tune of Rs.18,500 crores from the banking system and would leave banks with less money to lend and in turn would help cool inflation that is at a three-year high of 7.14 per cent.

Interest rates on home and retail loans are expected to rise, as a fallout of the hike. Since banks would be left with less cash to lend and have to source funds at a higher cost, they may increase lending rates.