India central bank cuts cash ratio amidst currency pressure

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