RBI cuts repo, reverse repo rate by 100 bps each.

>> Saturday, December 6, 2008

India`s central bank, the Reserve Bank of India (RBI) stepped in again to inject more liquidity into the system and slashed the key rates today in line with market expectations.

The reverse repo rate and repo rate have been slashed by 100 basis points each.

With this the repo rate will come down to 6.50% from the previous level of 7.50%, while reverse repo rate will come down to 5% from the previous level of 6%. The SLR and CRR have been kept unchanged. The rate cuts would be effective from Dec. 8, 2008.

Besides, the Small Industries Development Bank of India (SIDBI) and the National Housing Bank (NHB) are slated to get refinance facility of Rs 70 billion and Rs 40 billion respectively.

Prior to this, on November 1, the RBI had cut the repo rate by 50 basis points to 7.5% from the then prevailing level of 8% and on October 20 the RBI had announced a reduction in the repo rate under the Liquidity Adjustment Facility (LAF) by 100 basis points from 9% to 8%. The cash reserve ratio (CRR) of scheduled banks was reduced by 100 basis points from 6.5% to 5.5% of net demand and time liabilities (NDTL).

CRR is the minimum amount that banks must keep with the central bank in the form of cash or near cash securities, whereas the repo rate is the rate at which the RBI lends money to banks. Reverse repo is the rate at which RBI borrows money from banks.

Announcing the fresh measures, RBI governer, D Subbarao said that ``taken together with earlier measures, these would step up demand and arrest the growth moderation.``

The primary liquidity made available to the system through these measures is worth over Rs 3,000 billion, he added.

 He was also confident that the government`s decision to lower petrol and diesel prices would further ease inflation. - MyIRIS.com