Friday, January 2, 2009

India Cuts Rates, Unveils Stimulus Package

The Reserve Bank of India slashed its key rates and the federal government took a slew of measures on Friday as part of a second stimulus package aimed at spurring growth in Asia's third-largest economy.

The central bank cut the repurchase rate, or repo rate, by one percentage point to 5.5% with immediate effect.

'Even as some public sector and private sector banks have cut lending rates in response to the Reserve Bank's monetary policy stance, concerns over rising credit risk together with the slowing of economic activity appear to have moderated credit growth,' the RBI said.

The RBI also lowered the reverse repurchase rate by one percentage point to 4% to discourage banks from parking their surplus funds with the central bank.

The cash reserve ratio, or the proportion of deposits banks must set aside as cash, was trimmed by half a percentage point to 5% for the fortnight beginning Jan. 17, which will free up 200 billion rupees ($4.1 billion) in the banking system.
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