The Reserve Bank on Wednesday pumped in Rs 40,000 crore more into the banking system to help their liquidity needs and carry on lending, and made deposits more attractive for non-resident Indians.
It joined the government’s efforts to give the economy a booster dose while much of the developed Western world peered into a recession.
The third cut in the cash reserve ratio — the share of deposits banks park with the RBI — in a fortnight came bundled with other cash boosters.
The big push came after stock markets were overwhelmed by global worries that sank the benchmark Sensex at the Bombay Stock Exchange by nearly 6 per cent to 10,809, arresting a relief rally a day earlier aided by US measures to help its failing banks.
The key question now is whether India could sufficiently overpower sentiments triggered by crisis-ridden Western economies, though internal fundamentals are strong.
In tandem action with the RBI, Finance Minister P. Chidambaram unleashed an expected Rs 25,000 crore in Delhi to meet farm-loan waivers by banks and coupled it with a doubling of a ceiling on foreign institutional investor (FII) investment in bonds issued by Indian companies.
As reported in HT on Wednesday, the RBI made deposit rates more attractive for NRIs. This could stabilise the rupee and also add cash to the banking system. On the one hand, the RBI is selling US dollars to keep the rupee from falling but this takes away rupees that banks could lend to local firms.
“They (authorities) are trying to keep the system as liquid as possible perhaps because there is a need for more intervention in the foreign exchange market,” Abheek Barua, chief economist, HDFC Bank said.