M A I N   N E W S

RBI Dose 2: More cuts
CRR by 1%, Repo by 0.5%
Tribune News Service

Mumbai, November 1
Amidst concerns of the country's economic growth slowing down due to high cost of funds, the Reserve Bank of India today stepped in to effect further cuts in the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR) apart from a reduction in short-term lending rate (repo).


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In its statement today, the RBI said it was cutting the CRR by 1 per cent and a temporary 1 per cent reduction in SLR announced last month would be made permanent. The CRR, the amount banks are required to keep with the apex bank, has been cut from 9 per cent earlier to 5.5 per cent in three tranches.

Apart from the release of Rs 1 lakh crore into the system, the apex bank has released another Rs 1.4 lakh crore into the system with today's cut. The reduction comes into effect from Monday.

The SLR, the amount banks have to keep with the RBI in the form of cash, gold or approved securities, was cut temporarily by 1 per cent last month to 24 per cent. This cut has been made permanent.

The RBI also cut its key short-term lending rate (repo) by 0.5 per cent to 7.5 per cent. Last month repo rate was cut by 1 per cent from 9 per cent to 8 per cent.

The RBI has also announced that it would release funds collected via the market stabilisation scheme (MSS) at a time when the country saw huge inflows in foreign exchange. The government had then issued securities to absorb the foreign funds. These securities would now be bought back by the government so as to release more funds into the system.

The timing and modalities of the buy-back operations would be notified separately, RBI said in its statement.

Reacting to the RBI moves, bankers said today they would be reducing their lending and deposit rates in the coming days.



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