MUMBAI, October 6, 2008 (AFP) – India’s central bank injected liquidity into the financial system by cutting the amount of cash commercial banks must hold in reserve, citing “a sharp deterioration” in the world financial situation.
After a day of market turmoil in which Indian stocks plunged nearly six percent, the bank lowered the cash reserve ratio (CRR) — the percentage of cash commercial banks must set aside — by 50 basis points to 8.50 percent, as it sought to ease tight credit conditions that have hit economic demand.
The Reserve Bank of India, which hitherto had made battling double-digit inflation its top aim, said ensuring enough cash in the system would take “priority in the hierarchy of policy objectives over the period ahead.”
“Central banks across the world have stepped up their liquidity operations,” said the Reserve Bank as it joined a host of other central banks around the world that have injected vast sums into the banking system since the collapse of Lehman Brothers in mid-September to try to head off a global recession.
The move, to take effect October 11, would inject some 200 billion rupees (4.2 billion dollars) into the financial system, the bank said.
The step came after many busines