Mumbai: India’s central bank Tuesday cut key policy rates to infuse more money into the banking system and also trigger lower interest rates on loans taken by the commercial and household sectors.
The repurchase rate, the interest charged by the Reserve Bank of India (RBI) on short-term borrowings by commercial banks, has been cut by 25 basis points to 7.75 percent. This has the potential to lower the cost of borrowings for banks.
Also, the cash reserve ratio, or the money against deposits which commercial banks have to retain in liquid assets, has also been lowered from 4.25 per cent to 4 percent.
“This reduction in the cash reserve ratio will inject primary liquidity of around Rs.180 billion into the banking system,” RBI Governor D. Subbarao said in his third quarter review of the monetary policy for the current fiscal.