Reserve Bank of India Cuts crr by 0.5%

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Reacting swiftly to the credit crunch in the Global financial market, Reserve Bank of India, has reduced its Cash Reserve Ratio by 1.5% within a period of just two days. The CRR which was at 9% came down to 7.5 %w.e.f. October 11, 2008 after the reduction of 150 basis point. As a result around Rs 60,000 crore will be pumped into the system.

The Central bank initially decided to reduce the CRR by 50 basis point but the deteriorating financial conditions and slipping market compelled the bank to review its decision the very next day and it was announced that CRR will be further cut down by 100 basis point thus making a total reduction of 150 basis point.

Active liquidity management is the focus point of the current monetary policy of the government and it has been trying hard to achieve it with the help of various liquidity modulation instruments. It is hoped that this decrease will have a soothing effect on the domestic market which has been reeling under severe stress in wake of Global credit crunch.

According to bank sources, "Reserve Bank of India will continue with its policy of active demand management of liquidity through appropriate use of the CRR stipulation and open market operations (OMO) including the MSS and the LAF, using all the policy instruments at its disposal flexibly, as and when the situation warrants".

Last Updated on 3/9/2011