After the reduction in policy rates, RBI’s Repo rate stands at 4.75% and Reverse Repo rate stands at 3.25%. While addressing to media, RBI Governor stresses that the bank should pass-on the reduction benefits to the consumers. India has witnessed the steep fall in demand for a credit.
RBI Reference Rate As on Apr 2009
| Bank Rate | 6% |
| Repo Rate | 4.75% |
| Reverse Repo Rate | 3.25% |
| Cash Reserve Ratio (CRR) | 5% |
| Statutory Liquidity Ratio (SLR) | 24% |
| Prime Lending Rate (PLR) | 13% |
The Indian Economy has also got affected by the economic crisis in developed countries. Since mid of Sep 2008, when the major financial institutions were collapsed, the India’s central bank has reduced its policy rates and CRR by number of times and SLR by 100 bps since than to prop the Indian economy up.
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Repo is a repurchase agreement, in which, RBI buy back the Gov't Bonds in exchange of cash from banks.
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Bank agrees to repurchase those securities at a latter date known as Reverse Repo.
India’s money supply dropped to 18.4% in compare to 21.7% last year which signifies the deceleration in credit market and the capital inflows. In the last few months, Indian Rupee has depreciated by more than 18% and likely to depreciate further due to higher risk aversion in Rupee denominated assets, acute deleveraging due to falling exports which resulted fall in corporate earnings and strong demand for US Dollar due to huge amount of selling in equity markets. However, since Mar 09, financial markets have performed better in compare to its peers and other developed markets due to attracting and cheap valuation of the India Incorporated. By taking these factors in mind, RBI is taking precise decision on a periodic basis to respond to the global financial crisis and to make a favorable economic environment. India’s external debt and national debt has reached the level of 49% to the annual gross domestic product, however the strong foreign reserves would ensure the external stability.
We would discuss more on the Indian Economy as well as the global economy in our special edition “Economy in Focus” after “Economy in Crisis” as the global economy has started picking up and giving the signs of recovery.