RBI downs repo and reverse repo rate further

December 6th, 2008 - 6:04 pm ICT by ANI  

New Delhi , Dec.6 (ANI):The Reserve Bank of India (RBI) in its bid to help out the ailing economy has announced a string of measures , including a one percent point cut in short-term rates (repo rate) at which it lends and borrows from banks.
It also decided to pump in an additional of Rs 11,000 crore to help the realty and small industry sectors.
A total of Rs 3,00,000 crores has been infused into the system, since October this financial year.
The repo rate, at which the apex bank lends overnight funds to banks, was reduced from 7.5 per cent to 6.5 per cent while the reverse repo rate, at which its accepts deposits from banks, was slashed to 5 per cent from 6 per cent.
The Cash Reserve Ratio (CRR) now stands at 5.5 percent from 9 percent earlier. But this is the first cut in the reverse repo rate since 2003. The changes will come into effect from 8th December.”It is our expectation that the banks will take a signal from the rate cuts,” RBI Governor D Subbarao said while announcing the measures.
The liberal monetary policy stance has been prompted by the lowering of inflation, Subbarao said, adding that it will come down further due to the reduction in petrol and diesel prices announced yesterday.
“There is evidence of economic activity slowing down, real GDP growth has moderated in the first half of 2008-09,he said.
“Industrial activity, particularly in the manufacturing and infrastructure sector is decelerating… recent data indicate that the demand for bank credit is slackening despite comfortable liquidity. Higher input costs and sluggish demand have denied corporate margins, while the uncertainty surrounding the crisis has affected business confidence,” the RBI chief said.
RBI also announced a Rs.7,000 crore refinancing facility to Small Industries Development Bank of India (SIDBI),in order to improve credit flow to the fund-starved micro and small enterprises. A similar package Rs 4,000 crore was announced for National Housing Bank.
The apex bank also decided to classify housing loans below Rs 20 lakh from housing finance companies to individuals under the priority sector. But banks can lend only five per cent of their total priority sector lending under this category.(ANI)

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