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Reserve Bank reduces short-term rates by 25 basis points |
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Reserve Bank of India has cut the key indicative short-term rates by 25 basis points on Tuesday looking for a fall in lending and deposit rates by banks.
While announcing the Annual Policy 2009-10, RBI Governor D. Subbarao stated, "Within the policy rate adjustment already effected by the RBI, there is scope for banks to further reduce lending rates so as to ensure credit flow for all productive economic activity. We hope and expect that banks will play their part in the economic adjustment process by passing on the benefits of lower interest rates to their customers."
He added, "Banks have told us of the constraints they face in further downward adjustment of deposit and lending rates. Some of the banks` apprehensions are valid and some not."
With immediate effect, the RBI has decreased the repo and reverse repo rates by 25 basis points to 4.75 per cent and to 3.25 per cent, respectively.
Since mid-September 2008, the policy measures have increased actual or potential liquidity in the financial system by over Rs. 4.20 lakh crore. Dr. Subbarao said, "This should assure financial markets that the RBI will continue to maintain comfortable liquidity."
He further said that considering the global trend in commodity prices and domestic demand-supply balance we project WPI inflation at around 4 per cent by end-March 2010.
According Dr. Subbarao, it is a challenge to make sure an interest rate environment that supports revival of investment demand. Policy measures concerning interest rate comprise constitution of a Working Group to evaluate the present BPLR system to make credit pricing more transparent; and payment of interest on savings bank accounts on a daily product basis with effect from April 1, 2010.
Reserve Bank of India is planning to launch a Task Force pertaining to the G-20 working groups; working group to implement the recommendations of the Committee on Financial Sector Assessment; and Financial Stability Unit in the RBI.
Measures relating to financial markets covers- further liberalisation of the FCCBs buyback policy, extension of the relaxation on the all-in-cost ceilings for ECBs up to December 31, 2009, extension of the special refinance facility and term repo facility and increased limit for export credit refinance for banks up to March 31, 2010. It also includes introduction of STRIPS (Separate Trading of Registered Interest and Principal Securities) to help the development of a sovereign zero-coupon yield curve; and revise the issuance structure of floating rate bonds, among others.
(Posted on : 23/04/2009)
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| Reserve Bank reduces short-term rates by 25 basis points |
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