|
|
The Reserve Bank of India (RBI) has announced cuts in repo rate and reserve repo rate by 50 basis point each. With these reductions, the repo rate has come down to 5 percent from 5.5 percent and reserve repo rate has declined to 3.5 percent from 4 percent. The repo rate is the rate at which RBI lends to banks against pledging of government bonds while reserve repo rate is termed as the rate at which the central bank absorbs liquidity from the banks by releasing government bonds.
According to RBI, the new measures will definitely help the banks to offer credits for productive purposes at viable interest rates. In order to maintain liquidity and keep the market alive, the central bank will continue to take ample initiatives in future. The economic slow-down has forced RBI to implement cut in key rates since October 2008. Until now, the central bank has reduced repo rate by a total of 350 basis points and the reverse repo rate by 200 basis points.
The current move of reduction in key rates was taken by RBI when the third quarter review on January 27, 2009 showed that GDP has come in lower than market expectations at 5.3 percent. The global financial and economic conditions have further worsened and hence the governments of all the countries were bound to introduce expansionary fiscal policies.
