The Reserve Bank of India (RBI) has reduced the Cash Reserve Ratio (CRR) for banks by a further 100 basis points, taking the total reduction in the portion of net demand and time deposits that banks should park with the central bank to 7.50 per cent, effective 11 October.

''On a review of the evolving liquidity situation in the context of global and domestic developments, it has been decided to reduce the Cash Reserve Ratio (CRR) by 150 basis points to 7.50 per cent of NDTL with effect from the fortnight beginning 11 October 2008 instead of the 50 basis points reduction announced on 6 October 2008, '' RBI said in a release.

The move would help release a total of about Rs60,000 crore into the system (up from the Rs20,000 crore cash injection announced earlier).

The RBI had, on 6 October, announced a reduction of the CRR for scheduled banks by 50 basis points to 8.5 per cent of net demand and time liabilities (NDTL) with effect from 11 October 2008.

The measure was intended to inject liquidity into domestic financial markets and ease the pressures brought on by the deterioration in the global financial environment.

The global financial situation has since worsened and the stock markets and money markets across the world had taken perhaps the biggest blow since the great depression of the 1930s.

Central banks across the world have responded to these extraordinary developments by synchronised policy actions, including measures for liquidity infusion.

The RBI, however, noted that the macroeconomic fundamentals of the Indian economy are strong and resilient and that India's financial system is sound, well-capitalised and well-regulated.

''Money and forex markets in India have been operating in a relatively orderly manner. The current domestic market conditions are essentially a reflection of the adverse developments and extreme uncertainty in international financial markets,'' the release pointed out.

''The Reserve Bank is monitoring developments closely and continuously and would respond swiftly and even preemptively to any adverse external developments impinging on domestic financial stability, price stability and inflation expectations and the continuation of the growth momentum of the Indian economy. The Reserve Bank is committed to maintaining financial stability and active and flexible liquidity management using all policy instruments is an integral part of this objective,'' the release said.

''The Reserve Bank stands ready to respond swiftly to meet any liquidity requirements that may arise in the context of the highly volatile external situation,'' the release added. 

The Reserve Bank also said that it would also ensure price stability while ensuring that the growth process is not affected.

While the RBI and the stock market regulator SEBI had announced measures to increase liquidity in the system, including reduction in CRR, lifting curbs on overseas borrowings and the issue of participatory notes by foreign institutional investors, the monetary authorities are vary of an inflation still ruling around 12 per cent.

While the annual rate of inflation has further eased to 11.80 per cent for the week ended 27 September, it is way above the 3.36 per cent recorded for the same period a year ago and the 5.0 per cent ceiling set by the RBI.