RBI cuts repo, CRR, SLR

The Reserve Bank of India, or RBI, has cut the repo rate by 50 basis points to 7.5% with effect November 3. It has also cut CRR, or cash reserve ratio, by 100 bps in two stages to 5.5%. The first stage of CRR cut would be with effect October 25 and the second stage would come into effect November 8. The 100-bps CRR cut will infuse Rs 40,000 crore into the system, the RBI said. The central bank will also cut SLR to 24% by 100 bps from November 8 onwards. It has allowed refinance to banks up to 1% of NDTL, or net demand and time liabilities, for 90 days. In a statement on its website, the RBI said, “The Reserve Bank has reviewed the current and evolving macroeconomic situation and liquidity conditions in the global and domestic financial markets.” The release stated, “On the growth front, it is important to ensure that credit requirements for productive purposes are adequately met so as to support the growth momentum of the economy. Domestic financial markets have been functioning normally. Prudent regulatory surveillance and effective supervision have ensured that our financial sector has been and continues to be robust. However, the global financial turmoil has had knock-on effects on our financial markets; this has reinforced the importance of focusing on preserving financial stability.” The Reserve Bank, the release said, will continue to closely monitor the developments in the global and domestic financial markets and will take swift and effective action as appropriate.The move comes close on the heels of the US Federal Reserve cutting its benchmark interest rates by 0.5% to 1% on October 30. Experts anticipated similar rate cuts across the globe. The next day, Bank of Japan cut interest rates from 0.5% to 0.3%.