21 Oct :The Reserve Bank announced a surprise 100 basis points cut in its short-term lending (repo) rate that could make loans cheaper, as the government said it would deepen efforts to ensure credit to the industry to feed economic growth.
The rate, slashed for the first time since March 2004, stands at 8 percent with immediate effect.
"In order to alleviate the pressure and, in particular, to maintain financial stability, the RBI has decided to reduce the repo rate under the liquidity adjustment facility by 100 basis points to 8 percent with immediate effect," the apex bank said in a statement, although a scheduled review of the monetary policy is slated for 24th October.
The rate cut comes on top of a 250 basis points cut in Cash Reserve Ratio (amount of depositors’ money that banks must hold in cash) by RBI to inject liquidity into the system in the face of a global credit crisis, whose impact is visible although not telling on the Indian economy.
"It (repo cut) will have beneficial effect on the interest rate structure, and in combination with the other steps to increase liquidity, will help to support economic activity and investment," Prime Minister Manmohan Singh told Lok Sabha on Monday.
The reduction in rates would enable banks to borrow short- term funds from RBI at a cheaper rate and pass on the benefit to customers, mainly the industry, which could look forward to revisiting expansion plans.
"Credit crunch that the world faces has also impacted us. We have taken a series of measures to infuse greater liquidity and to restart the process of credit," Finance Minister P Chidambaram said, hoping that the economy would grow by close to 8 percent in 2008-09 despite the global slowdown.
India feeling ripple effects of global financial crisis: FM
Finance Minister P Chidambaram has said India is feeling the ripple effects of global financial crisis though it may not have directly affected the country.
"Credit crunch that the world faces has also impacted us. We have taken a series of measures to infuse greater liquidity and to restart the process of credit," he said at a function to mark 50 years of Indo-German Bilateral Development Cooperation at New Delhi on Monday.
Chidambaram said the country has good regulations and regulators.
"We are moving at a calibrated pace. Our banking system is very strong and our banks are well capitalised and well regulated," he added.
He reiterated that economy would grow by close to 8 percent in 2008-09 despite the global slowdown.
Most pessimistic estimates have placed the growth rate at not less than seven per cent, he said.
"But I am confident that the economy will grow between 7 and 8 percent," he said.