In a surprise and quick move to stabilise the financial markets Rerve Bank of India on Monday cut it's key short-term lending rate by 100 basis with immediate effect. Now the new rate is 8.0%.
RBI reduced Cash Reserve Ration (CRR) three times this months to ease the liquidity situation which released 1 lakh core to the system. Also Goverment of India last week released 25,000 crore first phace of farm waiver loan. CRR cut and farm waiver loan installment together released 1,25,000 crore to the financial system.
But the Repo rate cut failed to cheer the share market. Sensex surged 492 points immediately after the announcement but gradually lost that gain and now trading at 10,169, just 194 points up.
As the Repo rate cut reduce borrowing costs this will help to easy the tight liquidity situation. Banks also expected to cut interest rate. But Banks may adopt a wait and watch step because these measures by RBI are temporary to stabilise the market and financial system.
