India's regulator cuts key rates

India's central bank — Reserve Bank of India (RBI) — cut its key short-term lending rate today and took other monetary steps to spur lending and economic growth to counter the impact of the global financial crisis. RBI reduced its key short-term lending rate, the repo, by 50 basis points to ease a credit crunch. "RBI is sending the message that it will provide stimulus for India's economy to grow by at least 7 to 7.5 percent" this financial year to March 20009, said Rupa Rege Nitsure, economist at state-run Bank of Baroda. As part of a triple-prong move, the bank also cut the amount commercial banks must keep in reserve, easing the cash reserve ratio to 6.5 percent from 5.5 percent — pumping billions of dollars into the financial system. And in another stimulus step, it cut the statutory reserve ratio — the amount banks must hold in government securities — to 24 percent from 25 percent to boost liquidity. Banks around the world have been lowering rates to spur growth, with the US Federal Reserve on Wednesday slashing its main policy rate to one per cent and neighbouring China also lowering key interest rates. Expectations swept the stock market yesterday that the bank would move soon to boost liquidity after corporate complaints that credit was extremely tight and data showed lower inflation than had been expected. But the timing was uncertain. The step came after India's inflation rate earlier in the week fell below 11 per cent for the first time since May to hit to 10.68 per cent. The moves reflected that the bank is "terribly worried", said Abheek Barua, chief economist at the HDFC Bank.
Source: THT