RBI feeds more cash into unsatiated market; cuts CRR by 1%

RBI feeds more cash into unsatiated market; cuts CRR by 1%


Mumbai: The Reserve Bank fed the banking system yet another 65,000 crore on Wednesday through a 1% cut in banks’ mandatory cash deposits (CRR) and disbursal of funds under the farm debt waiver scheme, with the promise that more would be done, if needed.

Major banking sector players said they would assess the situation and response of the market before taking a call on cutting interest rates, even though the second largest public sector bank PNB slashed its retail lending rates by 0.5% even before today’s reduction in CRR.

“RBI is monitoring developments in the financial markets closely and continuously and would respond swiftly and even preemptively to any adverse external developments impinging on domestic financial stability," the apex bank said announcing release of 40,000 crore through cut in CRR to 6.5%.

Similar cuts announced by RBI since 6 October has injected a whopping 60,000 crore and along with today’s development, banks would get Rs1,00,000 crore.

Factoring in the 25,000 crore that RBI is releasing under the debt waiver scheme and 20,000 crore for mutual funds, the total liquidity infusion amounts to 1,45,000 crore.

RBI’s liberal measures came on a day when stock markets tanked close to 700 points, ending a two-day winning streak that came on the back of government’s reassurance that it was continuing to fight the liquidity problems.

RBI governor D Subbarao returned from New Delhi after holding discussions with the Prime Minister and the finance minister on options to combat the liquidity crunch caused by the global financial meltdown.