The Reserve Bank of India (RBI) adopted a series of further monetary measures on Saturday, November 1, in order to enhance market liquidity. The highlights of the measures are as follows:
· The cash reserve ratio (CRR) has been reduced from 6.5% to 5.5%. This will be made effective in two stages: by 50 bps retrospectively with effect from October 25, and by a further 50 basis points prospectively with effect from November 8. This measure is expected to release ~INR 400 bn into the system.
· The repo rate has been reduced to 7.5% with effect from November 3, 2008 from the earlier level of 8.0%.
· On September 16, RBI had announced, as a temporary and ad hoc measure, that banks could avail additional liquidity support under the liquidity adjustment facility (LAF) to the extent of up to 1% of their net demand and time liabilities (NDTL). It has now been decided to make this reduction permanent. Accordingly, the Statutory Liquidity Ratio (SLR) will stand reduced to 24% of NDTL with effect from the fortnight beginning November 8.
· Under the Market Stabilisation Scheme (MSS), government securities (treasury bills and dated securities) have been issued to sterilise the expansionary effects of forex inflows. In the context of forex outflows in the recent period, it has been decided to conduct buy-back of MSS dated securities so as to provide another avenue for injecting liquidity of a more durable nature into the system.
n RBI emphasised that the global financial conditions continue to remain ...