The Reserve Bank of India has reduce the repo rate (short-term lending rate) under the Liquidity Adjustment Facility (LAF) by 100 basis points (0r 1 per cent) to 8.0 per cent with immediate effect.
In a statement issued on Monday, the Reserve Bank of India said that it 'has been continuously monitoring the monetary and liquidity conditions with a view to maintaining domestic macroeconomic and financial stability in the context of the global financial crisis.'
'The Reserve Bank has taken a number of measures over the last one month to augment domestic and forex liquidity,' the statement said.
'The global financial situation continues to be uncertain and unsettled. Even as countries directly affected by the turmoil have taken aggressive action to manage the crisis, confidence and calm is yet to be fully restored in the financial markets. Due to financial integration, this uncertainty is transmitting also to countries outside the epicenter of the crisis,' said the RBI statement.
'India too is experiencing the indirect impact of the global liquidity constraint as reflected by some signs of strain in our credit markets in recent weeks. The Reserve Bank has been and will continue to monitor the impact of global developments on our financial markets and on our liquidity conditions and will take action as appropriate,' the statement added.
The RBI had earlier in the month slashed the Cash Reserve Ratio (CRR) by 250 basis points unlocking Rs 100,000 crore (Rs 1,000 billion) into the financial system.
Finance Minister P Chidambaram told reporters in New Delhi that the move would be "beneficial" to borrowers and investors, boost confidence in the economy. He described the RBI decision as part of a series of measures to moderate inflation and ensure economic growth.