RBI likely to cut bank rate, CRR

24 Sep 2001

1

Mumbai: Following the rate-cuts by most central banks in the aftermath of the terrorist strike on the US, the Reserve Bank of India (RBI) is also considering a cut in the bank-rate and the cash reserve ratio (CRR).

The bank rate is presently at 7 per cent. Lowering the rate will mean lower cost of borrowings for the borrowers - an incentive to set up projects by borrowing and thus step up economic activity. The CRR is presently at 7.5 per cent and lowering the CRR will inject more funds into the banking system and increase liquidity.

The Indian economy was showing some positive signs of improvement with the government increasing its planned spending, but the terror attacks have changed all this. The probable war has also resulted in the Indian economy facing uncertainties and a rate-cut may be considered as a proactive way to counter these uncertainties.

The RBI has already intervened in the case of the rupee, which saw a slide of below Rs 48 .It also has opened a special window for government securities, the prices of which were crashing. The rate and CRR cuts are next in the series of measures to stabilise the monetary system.

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