M A I N   N E W S

RBI cuts bank rate, CRR

MUMBAI, April 1 (PTI) — In a bid to boost investment, the Reserve Bank of India (RBI) today cut the bank rate and the cash reserve ratio (CRR) by 1 per cent, each paving the way for lowering of interest rates by banks and raising the availability of funds for lending by about Rs 7,200 crore.

The Central Bank also reduced the savings deposit rate by half a per cent and the repos (repurchase options) rate by 1 per cent.

Announcing the decision, RBI Governor, Bimal Jalan said the bank rate had been brought down from 8 per cent to 7 per cent and CRR from 9 per cent to 8 per cent.

The savings deposit rate had been cut from 4.5 per cent to 4 per cent and would be effective forthwith. The repo rate had been brought down to 5 per cent from 6 per cent and comes into effect from Monday.

The long-awaited announcement to cut the CRR would increase funds for lending in the banking system by Rs 7,200 crore.

While the bank rate cut would be effective forthwith, the CRR cut would be implemented in two stages by 0.5 per cent each, effective from April 8 and April 22, respectively.

The rate cuts were a “good thing for the economy as a whole and would result in lower cost of funds,” Mr Jalan said.

The measure would also help the government as it would bring down the cost of funds under its borrowing programme.

“It’s (government’s) borrowing programme was expected to begin sometime next week,” the RBI Governor, said responding to queries.

Though mid-term review of the monetary policy was scheduled to be announced on April 27, the bank had decided to announce these measures “to begin the financial year on a positive note,” he said, adding “the market was also anticipating something of this kind.”

Mr Jalan said the bank had decided on the cuts after a review of liquidity and market conditions, but “it’s up to them (banks) to decide about when they would like to effect the rate cuts”.

The bank rate cut would result in lower interest rates on RBI advances under various facilities, including export credit refinance to scheduled commercial banks and primary (urban) cooperative banks, the RBI Governor said.

Other facilities that would see reduction in rates by 1 per cent were: collateralised lending facility (CLF), additional collateralised lending facility (ACLF), liquidity support to primary dealers, advances to state financiality (CLF), (ACLF), liquidity support to primary dealers, advances to state financial corporations and ways and means advances and overdraft to the central and state governments.

State Bank of India (SBI) Chairman and Managing-Director G.G. Vaidya said: “The rate cuts signal softening of interest rates”. However, he declined to say when the SBI would bring down rates on its advances.

The financial sector, including banks, have welcomed the RBI decisions.

“Cut in the bank rate and the CRR will definitely boost the demand for credit and also lower the cost of funds for the industry,” Bank of Baroda, Executive Director P.S. Shenoy said after the RBI announcement.

Mr Shenoy said these measures would help boost the economy which had been growing by 6 per cent.

The H.B. Mutual Fund Chief Executive, Mr R.K. Gupta, said the cut in the CRR would provide liquidity in the financial system and would lead to infusion of funds in the stock market, which had been in a bearish phase for the past one month.

“Cut in the savings rate by 50 basis points will make deposit with the banks less attractive and these funds would move to mutual funds, which have been providing an average yield of 15 25 per cent,” he added.

Finance Minister Yashwant Sinha has welcomed the RBI decision to cut the bank rate and the CRR saying that would benefit the Indian economy.

“I’m glad that the RBI has moved comprehensively in the matter. The reduction in interest rates and cut in the CRR are both positive developments,” Mr Sinha said in a statement after the announcement.

At a glance

— A reduction in bank rate from its present level of 8.0 per cent to 7.0 per cent as at the close of business on April 1, 2000.

— A reduction in the cash reserve ratio (CRR) by 1 percentage point from its present level of 9.0 per cent to 8.0 per cent in two stages by 0.5 percentage point, each effective from fortnights beginning April, 8 and April 22, 2000, respectively.

— A reduction in repo rate by 1.0 percentage point from its present level of 6.0 per cent to 5.0 per cent, effective from April 3, 2000.

— A reduction in saving deposit rate of scheduled commercial banks from its present level of 4.5 per cent to 4.0 per cent effective from April 1, 2000.