Reserve Bank of India announces monetary stimulus

Reserve Bank of India, indicating a further cut in home, auto and other loan rates, on Wednesday unveiled a fresh monetary stimulus that slashed the rates at which it lends and borrows short-term funds from banks by half a per cent.

New Delhi, March 4 : Reserve Bank of India, indicating a further cut in home, auto and other loan rates, on Wednesday unveiled a fresh monetary stimulus that slashed the rates at which it lends and borrows short-term funds from banks by half a per cent.

RBI cut Repo (overnight lending rate) by 50 basis points to 5 per cent and Reverse Repo (overnight borrowing rate) identically to 3.5 per cent with immediate effect.

As per the RBI, the decision "will further encourage banks to provide credit for productive purposes at viable interest rates. Bankers said rates would come down in the days to come. It will reduce the borrowing costs of banks, who have been citing high cost of funds as a key handicap for not passing on the full benefit to customers.

"It is a welcome move. This has given a window for banks to cut down rates but how soon and how much has to be decided by bankers individually," Bank of Maharashtra CMD Allen CA Pereira said.

This is the fifth monetary stimulus from RBI since mid-September 2008 to stimulate consumer spending, in addition to three fiscal packages announced by the government since December.

Pranab MukherjeePranab Muhkerjee on behalf of recuperating PM Dr. Singh, who holds the Finance portfolio, after announcing the third stimulus package in Lok Sabha last month, had said that it was now the turn of RBI to take measures to stimulate the economy.

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

ANI