RBI cuts repo, reverse repo rate by 100 bps

The Reserve Bank of India, or RBI, has cut the repo rate and reverse repo rate by 100 basis points, or bps, each to 6.5% and 5% respectively. (100 bps = 1%) However, it has kept unchanged the CRR, or cash reserve ratio and SLR, or statutory liquidity ratio.
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Dec 08, 2008, 10.39 AM | Source: CNBC-TV18

RBI cuts repo, reverse repo rate by 100 bps

The Reserve Bank of India, or RBI, has cut the repo rate and reverse repo rate by 100 basis points, or bps, each to 6.5% and 5% respectively. (100 bps = 1%) However, it has kept unchanged the CRR, or cash reserve ratio and SLR, or statutory liquidity ratio.

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RBI cuts repo, reverse repo rate by 100 bps

The Reserve Bank of India, or RBI, has cut the repo rate and reverse repo rate by 100 basis points, or bps, each to 6.5% and 5% respectively. (100 bps = 1%) However, it has kept unchanged the CRR, or cash reserve ratio and SLR, or statutory liquidity ratio.

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D Subbarao, Governor, Reserve Bank of India

The Reserve Bank of India or RBI today issued an unambiguous signal to banks to cut rates. It cut its repo and reverse repo rate by one percentage point each. With this cut, RBI will give only 5% to banks who keep their excess cash with them. This reduced return should force banks to lend to corporates rather than keep the money with RBI fearing bad loans. Also cutting the repo rate means banks can take money from the RBI at just 6.5%. The RBI Governor said he hopes banks will pass on this reduced cost to borrowers.

 

Also Read: RBI rate move: Bankers see further policy cuts  

 

The RBI has also provided special refinance facilities through SIDBI for some loans and for housing loans through the NHB. In addition, loans given by banks to housing finance companies will be treated as priority sector lending if they are for home loans of less than 25 lakhs.   

The RBI has also made it easier for companies to use their foreign exchange reserves to buyback their old FCCBs. The governor admitted that moderation of growth is more than expected, but refused to give a new forecast. Likewise, inflation too will be significantly lower than the 7% forecast for March earlier.

 

Also Read: Priority sector lending upto Rs 20 lakh a +ve: Parsavanth

 

 

Among the most important message of this mini credit policy is the unambiguous message of the RBI that it will keep adequate liquidity in the banking system, so that bankers are not hoarding cash out of caution.

 

Commenting on the rate cuts, RBI Governor D Subbarao, said reverse repo and repo rate cut will signal towards banks' lending rate cuts.

 

Subbarao said, Indias Gross Domestic Product or GDP growth will be moderate than RBI's forecast, and assured that liquidity situation is more than comfortable. However, decline in inflation is sharper than expected and fuel price cut should further ease inflationary pressure.

 

Also Read: Evidence of slowdown in economic activity: RBI

 

 

The Governor said first time in seven years exports have declined in absolute terms, adding that emerging economies will be affected only marginally.

 

Also Read: Rate cuts won't lift mkts until macros improve: Experts

 

 

Key take-aways from today's rate cut:

  RBI cuts reverse repo and repo rates by 100 bps

  SIDBI and NHB are being given liquidity support to the extent of Rs.7000 crore and Rs.4000 crore to provide liquidity support both SME segment as well as Housing Finance companies

 FCCBs are now being allowed to be bought back by Indian corporates, basically issuers out of their own dollar resources raised through ECB or FCCB

 Loans granted to HFCs to fund less than Rs 20 lakhs of housing dwelling units, would be classified under the priority sector lending

Decided to extend exceptional/ concessional treatment to the commercial real estate exposures which are restructured up to June 30, 2009

Second restructuring done by banks of exposures (other than exposures to commercial real estate, capital market exposures and personal/ consumer loans) up to June 30, 2009, will also be eligible for exceptional regulatory treatment.

 

 

 

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