RBI slashes key interest rates, CRR to boost investment, spending

The Reserve Bank of India (RBI) has slashed both its short-term lending rate or repo rate and the reverse repo rate (the rate at which the central bank absorbs excess cash from the system) by 100 basis points (bps) each, effectively bringing down the key interest rates to 5.5 percent and 4 percent respectively.

The cash reserve requirement (cash reserve ratio or CRR or the proportion of deposits banks need to keep with the central bank) has also been brought down by bps to 5 percent.

While the reductions in repo and reverse repo rates will be effective immediately, the CRR reduction will be effective from the fortnight beginning January 17, 2009.

Though India's financial sector has shown resilience in the face of global financial turmoil that is so deep and pervasive yet "the financial crisis and the follow-on global economic downturn" has impacted the nation's "growth trajectory," the central bank said in a release.

"This impact has turned out to be deeper and wider than earlier anticipated. Concurrently, because of global developments coupled with supply and demand management measures at home, inflation is on the decline," it said.