New Delhi, Oct 20: In an expected but significant move, the Reserve Bank of India on Monday, Oct 20 cut the key short-term lending rate (repo) by 100 basis points or 1 pc to 8 pc. The Apex Bank, which had been constantly intervening to stabilise the Indian financial system from the effects of the global melt down, had already introduced various measures, including a 250 basis points reduction in the Cash Reserve Ratio to ease the situation.
The rate cut comes into force with immediate effect and would help boost liquidity in the Indian markets. It will also help lower interest rates and spur consumption to keep the economy ticking. The repo rate cut would make the banks' borrowing from the RBI cheaper. "In order to alleviate the pressure and, in particular, to maintain financial stability, the RBI has decided to reduce the repo rate under the liquidity adjustment facility by 100 basis points to 8 percent with immediate effect", it said in a statement.
Finance Minister P Chidambaram told reporters in New Delhi that the move would be 'beneficial' to borrowers and investors, and boost confidence in the economy. He described the RBI decision as part of a series of measures to moderate inflation and ensure economic growth.
"This is our hope, (it) will enthuse investors to continue to take forward their investment proposals," he said.
The Central Bank said India was experiencing the indirect impact of the global liquidity constraint as reflected by some signs of strain in the credit markets in recent weeks.
It said, ''The global financial situation continues to be uncertain and unsettled. Even as countries directly affected by the turmoil have taken aggressive action to manage the crisis, confidence and calm is yet to be fully restored in the financial markets. Due to financial integration, this uncertainty is transmitting also to countries outside the epicenter of the crisis.''