Reserve Bank cuts key rates once again

March 4th, 2009 - 9:15 pm ICT by IANS  

New Delhi, March 4 (IANS) With the economic growth rate for the third quarter falling to 5.3 percent - the lowest since 2003 - the Reserve Bank of India (RBI) Wednesday evening announced monetary stimulus in the form of reductions in the repo rate and the reverse repo rate by 50 basis points each.
The repo rate (rate at which banks borrow money from RBI), which was last revised Jan 2, will now come down to 5 percent, while the reverse repo rate (rate at which RBI borrows from the banks) has come down to 3.5 percent.

In January, the RBI reduced both the rates by 100 basis points each.

A reduction in the repo rate lowers the cost of borrowings for commercial banks. While lowering of the reverse repo rate, makes it less lucrative for banks to park funds with the central bank.

“The global financial and economic conditions have further deteriorated as revealed by the latest available information,” the bank said in a statement.

Overall, the growth for the first nine months of the current fiscal has dropped to 6.9 percent, as opposed to the impressive 9 percent economic expansion in the corresponding period last fiscal.

“India’s growth trajectory has been impacted both by the financial crisis and the follow-on of global economic downturn. This impact has turned out to be deeper and wider than anticipated earlier,” the RBI statement said.

“It is expected that the reduction in the policy interest rates will further encourage banks to provide credit for productive purposes at viable interest rates. The Reserve Bank on its part would continue to maintain ample liquidity in the system.”

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