Oct 15, 2008|
RBI acts yet again - Cuts CRR by 1%
In an action that speaks volumes of the liquidity crunch facing the Indian financial system, the RBI has decided to reduce the CRR (cash reserve ratio) by a further 100 basis points (1%) to 6.5% with effect from the current reporting fortnight that began on October 11, 2008. This measure is expected to release additional liquidity into the system of around Rs 400 bn. This takes the total cut in the CRR in this month alone to 2.5%.
Also read - RBI's statement on CRR cut
As a matter of fact, the Indian central bank, on 10th October (last Friday) had made the steepest cut in the CRR (proportion of deposits lenders need to set aside as reserves) since 2001, slashing the same by 1.5% to 7.5%. That action infused Rs 600 bn into the system.
The Reserve Bank of India (RBI) is working in conjunction with the Indian government in defusing the liquidity crisis. The government has advanced the payment of Rs 250 bn to banks for providing debt relief to farmers and has indicated that it will make finance available for lenders to raise their capital adequacy ratio to 12%.
The RBI's steps in the past week and today are in line with actions taken by policymakers around the world (US, Europe, Japan) to boost money supply and avert a recession.
Readers would do well to note that the Indian banking system and corporations (especially in the real estate sector) have been severely starved for liquidity on account of the ongoing crisis in the US and Europe. The RBI's moves have also come in on account of the rupee's continued decline (6.3% in the last one month alone) against the US dollar.
The central bank, however, continues to be cautious about alleviating inflationary pressures. Bankers, who saw Friday's rate cuts as being insufficient to pass on any benefit to customers, are yet to speak on the central bank's today's action.
In the meanwhile, stocks in the US have opened deep in the red today. CNN's financial website says that "a weaker-than-expected retail sales report has reminded investors that bailout or no, the economy is either in a recession or teetering on the brink of one."
The Dow Jones Index and Nasdaq are currently trading down by 3.5% and 3% respectively. Most European markets are trading weak in the range of 5% to 7%. Oil is at US$ 78.6 per barrel, down US$ 2.6. Gold, at US$ 845.6 an ounce, is up for the first time in five days.
More Views on News
Jul 25, 2017
Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?
May 27, 2017
What happens when minority shareholders are short-changed in the normal course of business?
Feb 15, 2017
PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.
Aug 24, 2016
And here's your chance to claim a free copy of this book...
Aug 12, 2016
And Why India's demographic dividend could turn out to be a doubtful debt...
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407