Announcing the measures, the RBI said, “global financial conditions continue to remain uncertain and unsettled, and early signs of a global recession are becoming evident. These developments are being reflected in sharp declines in stock markets across the world and heightened volatility in currency movements.” International money markets are yet to regain calm and confidence and return to normal functioning. The Sensex had dropped 24 per cent in October.

What has helped the RBI come out with a rate cut is the decline in inflation since August 9, 2008 to 10.68 per cent for the week ended October 18. “Globally, pressures from commodity prices, including crude, appear to be abating. The moderation in key global commodity prices, if sustained, would further reduce inflationary pressures,” it said.

The RBI further said that it would continue to sell foreign exchange (US dollar) through banks to augment supply in the domestic foreign exchange market and intervene directly to meet demand-supply gap. The forex reserves had fallen by over $ 15 bn last week, largely due to the RBI intervention in the forex market to stabilise the rupee. On the growth front, the RBI said, “It is important to ensure that credit requirements for productive purposes are adequately met so as to support the growth momentum of the economy. Domestic financial markets have been functioning normally.”

Bankers on Saturday said that the steps would induce banks to cut lending rates like commercial, home, auto loans as well as deposit rates. (See business page). Reeling under pressure of costly borrowing, corporates will surely heave a sigh of relief as the steps by the RBI will ease liquidity in the system thereby lowering the interest rates. ICICI Bank’s joint managing director Chanda Kochhar said that the steps taken by the banking regulator will bring down interest rates. “It shows the mindset of the regulator that is continuously monitoring the situation and coming up with measures on dynamic basis,” she said.