RBI cuts CRR by additional 1 pc

Taking swift action to inject about Rs 60,000 crore into the cash-strapped system, the Reserve Bank on Friday announced additional one percent cut in mandatory requirements for banks to keep cash with the central bank over and above 0.50 percent reduction announced earlier.


With this, a total 1.50 percent cut in Cash Reserve Ratio (CRR) to 7.50 percent will come into effect from Saturday.

"Accordingly, on a review of the evolving liquidity situation in the context of global and domestic developments it has been decided to reduce CRR by 150 basis points to 7.50 per cent with effect from the fortnight beginning October 11, 2008 instead of 50 basis points reduction announced on October 6, 2008," RBI said in a statement in Mumbai.





Both the measures -- a one percent and a 0.50 percent cuts in CRR -- came ahead of RBI's mid-term review of monetary policy slated for 24th October.


"In the context of the abrupt changes in the international financial environment, it is important to note that the economic fundamentals of the Indian economy are strong and resilient and that India's financial system is sound, well-capitalist and well-regulated," RBI said.



The central bank said money in forex markets in India have been operating in a relatively orderly manner.



"The current domestic market conditions are essentially a reflection of the adverse developments and extreme uncertainty in international financial markets," the statement said.



The Reserve Bank also said that it would ensure price stability along with the growth process.



"The Reserve Bank is monitoring developments closely and continuously and would respond swiftly and even preemptively to any adverse external developments impinging on domestic financial stability, price stability and inflation expectations and the continuation of the growth momentum of the Indian economy," it said.



Finance Minister P Chidambaram had already assured the nation that liquidity will be injected into the system if the need arises.



Besides RBI's measures, certain other steps like lifting of curbs on Participatory Notes by market regulator Sebi and relaxation in overseas borrowing norms by the government have already been taken to inject money flow into the system.