Jalan Gambles On Rate Cut To Push Growth

The Reserve Bank of India today launched a two-pronged attack on economic slowdown in its mid-term monetary policy. It cut the benchmark bank rate by 50 basis points to a 28-year low of 6.5 per cent and also slashed the cash reserve ratio (CRR) to 5.5 per cent in two stages.

The cut in CRR will infuse Rs 8,000 crore worth of liquidity into the system of which Rs 6,000 crore will be released from November 3. This, in combination with the bank rate cut, will prompt banks to pare their lending rates by 50 basis points over the next few weeks. State Bank of India may take the lead in the first week of November.

The RBI also increased the interest payable to banks on the CRR balance from 4 per cent to 6.5 per cent by linking it to the bank rate. This will increase bank