‘Repo cut signals banks to reduce int rates, infuse money’

Tuesday, October 21, 2008 at 4:10 am

RBI’s move to cut short term lending rate, repo, will send important signal to banks to moderate interest rates and ease liquidity, the Planning Commission said today.

“This (repo rate cut) is a very important signal and I am sure that banks will read that signal and it will lead to more money being available and some moderation in interest rates,” Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters after conference on public finance here.

He said, the reduction in the short-term lending rate (repo rate) should be looked as a part of the package aimed at introducing liquidity in the system, which included cut in cash reserve ratio, introduction of flexibility in SLR, advisories given by the central bank to banks etc.

The Reserve Bank today reduced repo rate by 100 basis points to 8 per cent to help banks seek funds from the central bank at lower rates against government securities and reduce lending rates.

RBI had earlier in the month slashed the Cash Reserve Ratio (CRR) by 250 basis points unlocking Rs 1 lakh crore.

Ahluwalia said the government is watching the situation closely and would not hesitate to take more steps but as of now there in enough liquidity in the system.

The call money rates, he added, are below seven per cent and now it should be ensured that the banks use the liquidity provided to them to make credit more freely avabilable.

(Agencies)

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‘Repo cut signals banks to reduce int rates, infuse money’

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