Mumbai, Friday 2 January 2009: The Reserve Bank of India on Friday slashed key rates to boost the liquidity situation in the country.

The central bank slashed the Repo Rate (at which it lends money to banks), and the Reverse Repo Rate (the rate at which banks park their fund at RBI) – by one percent each.

The Repo Rate was down by 100 basis points from 6.5 per cent to 5.5 per cent with immediate effect, while the Reverse Repo Rate is at 4.0 per cent from 5 per cent earlier.

Cash Reserve Ratio, the minimum amount that banks has to keep with it, was reduced by 50 basis points from 5.5 per cent to 5.0 per cent from the fortnight beginning January 17, 2009.

According to RBI, the reduction in the CRR will inject additional liquidity of around Rs. 20,000 crore to the financial system.

“It is expected that the reduction in the policy interest rates and the CRR will further enable banks to provide credit for productive purposes at appropriate interest rates,” the bank hoped in a release.

Since mid-September 2008, the Reserve Bank has reduced the Repo Rate from 9.0 per cent to 6.5 per cent and the Reverse Repo Rate from 6.0 per cent to 5.0 per cent and the Cash Reserve Ratio from 9.0 per cent to 5.5 per cent.

The series of rate cuts have forced the public as well as private sector banks to reduce their PLRs drastically. However, banks are now unwilling to further slash their lending rates.
(Agency)