Second stimulus aims at boosting spending, investment

02 January 2009

The government and the Reserve Bank of India today announced a second stimulus package for the economy that includes a further easing of liquidity and liberalisation of various rules and regulations, to give a boost to spending and investment.

In order to further ease liquidity and credit flow, the Reserve Bank of India today reduced the repo rate under the liquidity adjustment facility (LAF)  by 100 basis points from 6.5 per cent to 5.5 per cent. It also reduced the reverse repo rate by 100 basis points from 5.0 per cent to 4.0 per cent with immediate effect.

RBI also announced a reduction in the cash reserve ratio (CRR) of scheduled banks by 50 basis points from 5.5 per cent to 5.0 per cent from the fortnight beginning 17 January 2009.

The reduction in the CRR is expected to inject additional liquidity of around Rs20,000 crore into the financial system, RBI said.

While several banks have reduced their lending rates recently, the reduction in the policy interest rates and the CRR will further enable banks to provide credit for productive purposes at ''appropriate'' interest rates, the central bank said.

The Reserve Bank on its part would continue to maintain a comfortable liquidity position in the system, it added.