The central Reserve Bank of India (RBI) Wednesday further cut the cash reserve ratio (CRR) by 100 basis points to 6.5 percent to release Rs. 40,000 crore or Rs. 400 billion (over $10 billion) into the system.
RBI said the new move would be effective from the current reporting fortnight that began Oct 11. It had earlier cut CRR or the minimum balance banks have to maintain against deposits to 7.5 percent.
The RBI move has come close on the heels of the government's decision Wednesday to release Rs. 25,000 crore (Rs. 250 billion) to finance the farm loan waiver by commercial banks.
"RBI has been continuously monitoring the liquidity and monetary conditions in the recent period. A host of measures have already been taken over the last one month to ensure that there is adequate liquidity in the system," said RBI in a statement.
"The Indian inter-bank unsecured money market has been functioning normally. Average daily volumes in the overnight call money market, at about Rs.14,000 crore (Rs.140 billion) in October 2008 have in fact been somewhat higher than those observed in the previous six month period," it said.
"On a review of the evolving liquidity situation, it has been decided to reduce the CRR by 100 basis points to 6.5 per cent with effect from the current reporting fortnight that began on October 11, 2008. This measure will release additional liquidity into the system of the order of Rs.40,000 crore," RBI said.
"Banks will be allowed to borrow funds from their overseas branches and correspondent banks up to a limit of 50 percent of their unimpaired Tier I capital as at the close of the previous quarter or $10 million, whichever is higher, as against the existing limit of 25 percent," said the central bank.
Indo-Asian News Service