RBI cuts CRR, repo rates to boost economy

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Reserve Bank of India
Mumbai, Nov 1: After infusing Rs 1,85,000-crore liquidity into the banking system, the Reserve Bank of India on Saturday, Nov 1 effected yet another 100 basis points cut in cash reserve ratio (CRR) and a 0.5 per cent reduction in key short-term lending (repo) rate, signaling softening of interest rates to prop up growth.

The one percentage point cut in CRR, the amount which banks have to park with the apex bank, has been brought down to 5.5 per cent to infuse additional liquidity of Rs 40,000 crore into the system. The CRR cut will be in two tranches and the first one of 0.5 per cent will be effective retrospectively from October 25 and the second from November 8.

The RBI also cut the repo rate, the rate at which it lends to banks, by 0.5 per cent to 7.5 per cent with effect from November 3.

Statutory liquidity ratio (SLR), the amount which banks are mandated to park in

government securities, have also been reduced by 100 basis points to 24 per cent.

Welcoming the decision, ICICI Bank Joint Managing Director Chanda Kochhar said, "it will release much needed liquidity into the system and signal reduction in interest rates."

To provide further comfort on liquidity and to impart flexibility in liquidity management to banks, the RBI has introduced a special refinance facility to scheduled commercial banks.

Under this facility, the banks will be able to borrow short-term funds from the RBI up to a maximum period of 90 days.

 

UNI 

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