RBI cuts overnight lending rate by 50 bps to 9% to ease liquidity pressures
07 Oct 2013
The Reserve Bank of India (RBI) has reduced the marginal standing facility rate by 50 basis points to 9.0 per cent, further reducing the overnight rate after the 75 bps cut announced in its 20 September monetary policy review.
RBI had pushed up the marginal standing facility (MSF) rate as an emergency measure in mid-July in order to prop up the battered rupee. RBI's 200 bps increase in the MSF rate in July had tightened short-term market liquidity.
''As part of the measures announced today by the Reserve Bank to improve liquidity conditions, the marginal standing facility (MSF) rate has been reduced by 50 basis points from 9.5 per cent to 9.0 per cent with immediate effect'', RBI said in a release.
Accordingly, the Bank Rate also stands adjusted to 9.0 per cent with immediate effect.
The RBI under the new governor Raghuram Rajan has decided to keep interest rates tight, contrary to popular expectations of an easier monetary regime.
The RBI last month announced an increase in the key policy repo rate, under which it buys government securities from banks under the liquidity adjustment facility (LAF), by 25 basis points to 7.5 per cent from 7.25 per cent with immediate effect.
It, however, reduced the marginal standing facility (MSF) rate by 75 basis points to 9.5 per cent from 10.25 per cent with immediate effect.
This has been done on the basis of an assessment of the current and evolving macroeconomic situation, RBI had said in its monetary policy statement.
RBI had also reduced the minimum daily maintenance of the cash reserve ratio (CRR) from 99 per cent to 95 per cent effective the fortnight beginning 21 September 2013, while keeping the overall CRR requirement unchanged at 4.0 per cent.
RBI expects the inflationary pressures to continue in the backdrop of high international prices of fuel and other commodities and a falling rupee in the absence of an appropriate policy response.
