Reserve Bank of India slashes the repo rate

The Reserve Bank of India slashes the repo rate by 0.5% or 50 basis points to 7.5% from November 3. The RBI also cut the CRR (Cash Reserve Ratio) by 1% or 100 basis points to 5.5%, which will be effective from November 7. The RBI’s initiative will inject Rs. 40,000 crore liquidity to the market, which has been on a decline in the past few weeks. The repo rate cut may result in a reduction of home loan and car loan interest rates.

 

Global Market Meltdown

The global market meltdown has taken a toll on Singapore Nifty or SGX Nifty with the index falling by 6 percent on Thursday. The stocks were down by 200 points at 3,139. The Singapore Nifty (SGX Nifty) was expected to fare better than Indian stock market, but that was not the case. Meanwhile, BSE Sensex continued moving downwards with losing over 710 points in the first hour of trading. The Nifty too lost over 220 points. RBI’s decision to cut the CRR (Cash Reserve Ratio) failed to bolster the market or improve the confidence of the investors. The bloodbath at Dalal Street continues…

The financial tsunami continued to play havoc in the US market. The recession fears loom large over the United States, as Dow Jones witnessed its biggest drop in the past 21 years. The Dow dropped 733.08 points or 7.9% to 8577.91 causing panic in markets across the world. If we believe the indications, the US economy is heading towards its deepest recession since the Great Depression in 1980s. The global crude oil prices reached a 13-month-low of $75 per barrel. Other indexes including the Standard & Poor’s 500 stock index, fell sharply. Investors across the globe lost about $1.1 trillion during the US market crash on Wednesday. This is the second time in stock history that investors lost over $1.1 trillion in a day. Asian markets too witnessed a decline. India’s BSE Sensex crashed by over 600 points, while Tokyo’s Nikkei Stock Average fell by 9.7%.

The Reserve Bank of India sprung a surprise by slashing the cash reserve ratio (CRR) by 100 basis points or 1 percent. The CRR now remains at 6.5%. The CRR rate cut will be with retrospective from October 11, 2008. The CRR cut is expected to release Rs. 40,000 crore into the market. The RBI has also raised the ceiling on FCNR (B) deposits by 50 basis points. The international ceiling rate on NRE(R)A deposits has been raised by 50 basis points. The hike in FCNR (B) and NRE(R)A was taken to ease the pressure on Rupee, which has declined significantly against the USA Dollar. The CRR rate cut is seen is a positive step by the RBI to improve liquidity and confidence.