RBI cuts CRR by 50bps; repo, reverse repo by 100bps

Encouraged by declining price line, the Reserve Bank of India (RBI) today announced steps to inject an additional Rs 20,000 crore into the system, a move that would pave the way for further cut in interest rates and more funds for credit disbursal.

As part of decisions, forming the second stimulus package finalised jointly with the government, the central bank cut cash reserve ratio (CRR) - the amount of cash that banks need to keep in reserve - by 50 basis points to 5 per cent.

The apex bank has also cut the short-term lending (repo) rate by 100 basis points to 5.5 per cent with immediate effect and short-term borrowing (reverse repo) rate by similar percentage points at 4 per cent.

 

The cut in CRR would lead to infusion of Rs 20,000 crore into the system over and above Rs 3,00,000 crore injected since October 2008.

The central bank had last cut the key benchmark rates by 100 basis points on December 6. Today's announcement comes 25 days ahead of the third quarterly review of credit policy scheduled for January 27.

All the steps taken by RBI would lead to further reduction in the interest rates by the banks.

SBI Chairman O P Bhatt said, "...We will definitely review our rates, both on the lending side as well as the deposit side in our Assets and Liability Committee, and as we have done in the past..."

Interest rate would definitely go down, Punjab National Bank Chairman and Managing Director K C Chakrabarty told PTI.

The bank would review the situation as rates were cut yesterday only, he said.