RBI slashes repo rate, forward dollar down

The one percentage point cut in fixed repo rate had an immediate effect on the securities market and yields came down on renewed buying pressure. In the foreign exchange market, forward premium on dollar came down. The six-month forward premia (annualised) went below the crucial 10 per cent barrier to close at 9.25 per cent.

Senior bankers ruled out any immediate cut in prime lending rates (PLR). However, with call ratesset to come down and rule between 8-8.75 per cent, bankers said that short-term deposit rates are likely to be revised.

As a part of the package, the RBI jacked up the repo rate by 200 basis points to 9 per cent besides hiking the bank rate by 200 basis points to 11 per cent the CRR by 50 basis points to 10.50 per cent.

"There is enough liquidity in the system. The RBI is expected to roll back the other measures in the slack season credit policy next month," Central Bank of India CMD KC Chawdhary said.

"We have been expecting the rolling back of January 16 measures. Interest rates will cool down and sentiments are bound to improve," P H Ravikumar, senior vice-president (treasury) at ICICI Bank said.

Commercial banks, especially the private and the foreign ones, had been lobbying hard with the RBI for a roll back of the January 16 measures as their profitability was hit hard due to higher provisions on their securities portfolio as a fallout of the hike in interest rates.