RBI Cut Repo Rate And Reverse Repo Rate by 100 BPS To 6.5% and 5% Respectively.

No change in Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). Banks are reluctant to cut rates despite the RBI’s rate cut move.

Most of the bank’s Prime Lending Rate is still hovering between 12% and 16% despite the RBI’s effort to ease the interest rates for the economic growth. In the wake of recent Mumbai attacks which hurt the investors’ sentiment, and the day after the RBI’s rate cut announcement, the Indian Government also announced the $4 billion (Rs. 20,000 Crore) fiscal stimulus package to impede the slowing economic growth. This stimulus package particularly announced for supporting the India’s Small and Medium Entreprises (SMEs) in order to protect them from falling demand of their products in international markets as the consumer cut back their spendings in a recessionary economy. Major support by the government comes to the ailing Textile Sector. Many small textile companies have already shut their operations due to cash shortages (working capital) to run daily operations.

The recent GDP data was not surprising and not even so attractive. The growth at 7.1% was already anticipated however, the GDP growth could tumble further to the lower than that levels. Although, recent move by the Govt. and the RBI will strenghten the economic efficiency, but still RBI needs to respond to further economic developments over the period of time. We’re expecting the more rate cut and even CRR cut from the RBI side and may likely to cut both Repo Rate and Reverse Repo rate in the next few months. Even we can see the CRR cut to increase liquidity in the banking system if required.

The recent rate cut announcement by RBI on 2nd Jan 2009. Click here to find out.

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