India’s central bank cuts key interest rate


Mumbai : India’s central bank Monday cut a key interest rate by 100 basis points to 8 percent with immediate effect in a bid to reduce the cost of borrowing for commercial banks.

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“The global financial situation continues to be uncertain and unsettled,” the Reserve Bank of India (RBI) said, while reducing the repo rate, the interest charged on borrowings by commercial banks, by 100 basis points.

“Even as countries directly affected by the turmoil have taken aggressive action to manage the crisis, confidence and calm is yet to be fully restored in the financial markets,” the central bank said in a statement.

“India too is experiencing the indirect impact of the global liquidity constraint as reflected by some signs of strain in our credit markets in recent weeks,” the central bank said, adding the move Friday was to alleviate such pressures.

“The Reserve Bank has been monitoring and will continue to monitor the impact of global developments on our financial markets and on our liquidity conditions and will take action as appropriate.”

Over the past fortnight, the central bank had cut the cash reserve ratio, or the minimum cash commercial banks have to retain against deposits, by 150 basis points to release some Rs.650 billion ($14.4 billion) into the system.

Earlier, the government had asked Rs.250 billion ($5.5 billion) be released to lending institutions against the Rs.710 billion farm loan waiver scheme to give as credit to the fund-starved industry.

Commenting on the latest cut in repo rate, Finance Minister P. Chidambaram said in New Delhi that a series of measures had been taken by the government and the central bank to address the problem of liquidity in the Indian financial system.

“The cut in repo rate will be beneficial to many sections including lenders, the borrowers and investors,” he told reporters in the capital.