India Economy: Policy Rate Cuts

RBI cut the Repo and Reverse Repo rate by 100 basis points to 6.5% and 5.0% respectively. Below is the full RBI announcement and it is refreshing given the nonsense that is printed in Headline newspapers and the nonsense mouthed by our Politicians..Highlights:

Prospects of emerging economies have most definitely been undermined by the ongoing crisis...transmission to emerging economies is taking place via both trade and financial channels...Outlook for India going forward is mixed.

It has been decided to reduce the repo rate under the LAF by 100 basis points from 7.5 per cent to 6.5 per cent and the reverse repo rate by 100 basis points from 6.0 per cent to 5.0 per cent, effective December 8, 2008.

since mid-September 2008...cumulative amount of primary liquidity made available to the financial system through these measures is over Rs.300,000 crore

it has been decided to provide refinance of an amount of Rs.7,000 crore to the Small Industries Development Bank of India (SIDBI...working on a similar refinance facility for the National Housing Bank (NHB) of an amount of Rs 4,000 crore

the Reserve Bank will consider applications for buyback of FCCBs out of rupee resources provided that: (i) there is a minimum discount of 25 per cent on the book value; (ii) the amount of the buyback is limited to US $ 50 million of the redemption value per company; and (iii) the resources for buyback are drawn out of internal accruals of the company as certified by the statutory auditor.

it has been decided to extend exceptional/concessional treatment to the commercial real estate exposures which are restructured up to June 30, 2009...(Now NPA's will be hidden...Lee)

a period of painful adjustment is inevitable...(Facing Reality...Kudos..Lee)

Now for the fiscal stimulus....let us hope it is as well thought out...fortunately the spendthrift is busy elsewhere.  Over to you Mr. Ahluwalia.
RBIDec6   

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