RBI Cut CRR By 100 BPS To 5.5% And Repo Rate By 50 Bps To 7.5%

In an effort to maintain the GDP growth target of 7%, the India’s central bank Reserve Bank of India (RBI) has cut repo rate by 50 bps to 7.5%, Statutory Liquidity Ratio (SLR) by 100 bps to 24% and Cash Reseve Ratio (CRR) by 100 bps. As the global economic downturn has significant impact on the India’s economic growth, RBI is actively responding to the recent economic developments. Inter-bank Call Rate has jumped to almost 20% in the last few days despite the 21st Oct, CRR and Repo Rate cut. The liquidity is continue to drying up and Mutual Funds are now demanding more cash. To maintain the banking system’s stability, RBI going to infuse Rs. 40,000 Crore ($8.03 Billion) in two phases by cutting CRR.
RBI's CRR Action
RBI’s CRR Action in Year 2008. (Source: RBI)

To maintain the balanced and sustainable economic growth, RBI also cut Repo Rate by additional 50 bps to 7.5%. This will helps the commercial banks to cut Prime Lending Rate (PLR) to lend the money to RBI’s focus area. Currently, various sectors of the Indian Economy is facing different hurdles and difficulties for raising money to fund their expansions and projects. 50 bps Cut in Repo Rate will ensure some stability in the economy and of course the Indian Economy also not insulated from the global economic downturn, from my viewpoint, the RBI’s recent move is commendable and going forward it will definitely work.

Please checkout the latest RBI Rate cut dated: 6th of Dec, 2008. Click here.

VMW Definitions: Repo rate is a rate at which, RBI repurchases or sold Govt Securities from the commercial banks to expand/decrease the money supply in exchange of cash, while the CRR is a reserve ratio. Banks kept some portion of their deposits with the RBI at a prescribed reserve rate. SLR on the other hand is the statutory liquidity ratio at which banks need to kept short term securities such as Cash, Govt Securities, Precious Metals like Gold and Silver and other short term securities. For more information on these terms and news, send an email at vishalmishraweb@yahoo.com

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