RBI cuts CRR by 100 bps; announces measures to improve liquidity

The cash reserve ratio (CRR) of scheduled banks, which is 7.5 per cent at present was cut by 100 basis points to 6.5 per cent with effect from the current reporting fortnight that began on October 11, 2008. This measure will release additional liquidity into the system of the order of Rs.40,000 crore.

The Reserve Bank of India said it was continuously monitoring the liquidity and monetary conditions in the recent period and has taken a host of measures over the last one month to ensure that there is adequate liquidity in the system.   
 
It said that the continuing uncertain global situation was having an indirect impact on our financial markets. As a result it also decided to conduct  a special 14-day repo at 9 per cent per annum for Rs 20,000 crore with a view to enabling banks to meet the liquidity requirements of mutual funds.

RBI had instituted a mechanism of Special Market Operations for public sector oil marketing companies in June-July 2008 taking into account the extraordinary situation then prevailing in the money and forex markets.  RBI will institute a similar facility when oil bonds become available.

Under the Agricultural Debt Waiver and Debt Relief Scheme, the government had agreed to provide to commercial banks, RRBs and co-operative credit institutions a sum of Rs.25,000 crore as the first instalment. RBI will provide the sum to the lending institutions immediately.       

It also raised the interest rate ceiling on FCNR (B) deposits by 50 basis points, i.e., to Libor/Euribor/Swap rates plus 25 basis points from immediate effect. On NR(E) RA deposits of one to three years maturity too it raised the ceiling by 50 basis points.
 
The Reserve Bank said it was monitoring developments in the financial markets closely and continuously and would respond swiftly and even pre-emptively to any adverse external developments impinging on domestic financial stability, price stability and inflation expectations.