RBI cuts key rates; move to ease money supply

Mumbai, Mar 4 (PTI) The Indian apex bank, Reserve Bank
Wednesday cut its key overnight lending and borrowing rates by
50 basis points each with immediate effect, signalling banks
to further soften interest rates.

Since October, RBI has reduced key policy rates to fuel
demand in the economy reeling under the impact of the global
financial meltdown.

The repo, the rate at which RBI lends short-term funds to
commercial banks, has been reduced from 9 percent in October
to 5 percent now. Similarly, the reverse repo, the rate at
which banks park overnight funds with RBI, has been brought
down from 6 percent to 3.5 percent.

The decision, RBI said, "will further encourage banks to
provide credit for productive purposes at viable interest
rates. The Reserve Bank on its part would continue to maintain
ample liquidity in the system."

The decision to reduce key rates follows a review of the
current global and domestic macro-economic situation, the RBI
said.

Following the string of rate cuts by RBI, banks,
especially state-owned, have reduced their lending and deposit
rates considerably, but borrowing activities do not seem to
have witnessed any major surge.

RBI Governor D Subbarao had earlier said there is room for
further cut in policy rates.

Even though banks have cut lending rates in response to
RBI's policy stance, the central bank said in a statement that
"concerns over rising credit risk together with the slowing of
economic activity appear to have moderated credit growth."

It further said that banks should ensure that creditworthy
enterprises should continue to get funding. PTI CS
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