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Today Indian central bank, The RBI reduced CRR by 50 basis points to ease liquidity in the market. This measure was undertaken as an ad-hoc measure on a temporary basis. RBI has indicated that it will adopt a proactive policy and continue taking such ad-hoc measure from time to time depending on market conditions. The indian banks were facing tight liquidity crunch and this could have led to a major liquidity crisis hence all banks have welcomed this move and called for another 50 basis point drop. HDFC Bank chairman Mr. Deepak Parekh while welcoming this move said that this action was long overdue and infact should have been taken on last friday itself.

The RBI will hold a meeting at the end of this month where further actions are expected, this move is only expected to have an effect on overnight call rates and lending deposit rates will not be affected.

The above said action will come into effect from 11 Oct 2008 and will result in a liquidity release of 20,000 crores. Watch out for Banking stocks in tomorrow’s trading session.

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1) Bank Rate kept unchanged at 6 percent.
2) The reverse repo rate and the repo rate unchanged at 6 percent and 7.75 percent, respectively
3) CRR kept unchanged at 7.5 percent.
4) GDP growth projection for 2007-08 is 8.5 percent.
5) The policy endeavour would be to contain inflation close to 5 percent in 2007-08 while conditionig expectations in the range of 4-4.5 percent.
6) Loan growth slows; but money supply and aggregate deposits continue to expand well above indicative projections

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