January 24th, 2012
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RBI slashes CRR rates by 50 bps

rbiMumbai: The Reserve Bank of India cut the cash reserve ratio (CRR), the amount of deposits the banks are required to keep with RBI in cash, by 50 bps to 5.50 per cent which will be effective from January 28. With this change in policy the apex bank intends to inject Rs. 32,000 crore into the system. RBI has left key interest rates untouched. The repo rate (the rate at which the RBI lends funds to banks) will thus remain unchanged at 8.5 per cent and reverse repo rate (at which the RBI borrows money from banks) at 7.5 per cent.

With additional liquidity by CRR cut, there is a possibility that banks may reduce the interest rate to attract borrowers. The RBI also cut GDP forecast for Financial Year 2012 from 7.6 per cent to 7 per cent. The RBI Governor D Subbarao said liquidity conditions remain tight and the policy action to ease liquidity. Subbarao added that the Budget must start process of fiscal consolidation.



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