RBI cheers market with 0.25% cut in policy rates

RBI governor D SubbaraoThe Reserve Bank of India today reduced its key interest rates by 25 basis points or 0.25 per cent and released Rs 18,000 crore additional liquidity into the system

In its third quarter monetary policy review, the central bank shed its 9-month-long tight monetary policy, cutting both the repo (short-term lending) rate and the cash reserve ratio by the same margin.

The repo rate now stands at 7.75 per cent and the CRR at 4 per cent, in a move that is expected to release Rs18,000 crore of additional liquidity into the system, in order to help boost sagging industrial growth.

As a result, rate-sensitive stocks like auto, banks and realty immediately became more buoyant.

While repo rate cut will reduce the cost of borrowing for individuals and corporates, the reduction in CRR, which is the portion of deposits that banks have to park with RBI, would improve the availability of funds.

''The stance of monetary policy in this review is intended to provide an appropriate interest rate environment to support growth as inflation risks moderate,'' RBI governor D Subbarao said while unveiling the policy review.