In a statement on its website, the RBI said that Saturday’s measures were “in view of the ebbing of upside inflation risks as also to address concerns relating to the moderation in the growth momentum”. RBI Governor D Subbarao recently acknowledged that the indirect impact of the global crisis on countries such as India is by no means trivial or insignificant. Clearly, today’s measures reflect those concerns and the government’s resolve to keep the growth juggernaut running.

The RBI has also reduced the statutory liquidity ratio—the portion of bank funds to be invested in government securities—by 100 basis points to 24 per cent of deposits with effect from the fortnight beginning November 8. The SLR was cut temporarily by one per cent earlier to 24 per cent and this cut has been made permanently effective.

In another significant move to improve liquidity, the RBI has decided to buy back the government securities sold under the Market Stabilisation Scheme (MSS) earlier to sterilise the expansionary effects of forex inflows. “In the context of forex outflows in the recent period, it has been decided to conduct buy-back of MSS dated securities so as to provide another avenue for injecting liquidity of a more durable nature into the system. This will be calibrated with the market borrowing programme of the government,” it said.

After providing liquidity support to mutual funds, the central bank has also decided to extend the liquidity support to non-banking finance companies to enable them to manage their funding requirements. In order to facilitate this, it has now allowed banks to avail funds up to 1.5 per cent of their deposits by relaxing the SLR norms. The RBI has also introduced a special refinance facility for banks to draw funds from the central bank up to one per cent of their deposits as on October 24 for 90 days at 7.5 per cent.

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