1. Bank Rate cut by 25 bps to 6.25 per cent
Implication: Whether this will trigger the banks' to lower their prime lending rates and hence induce higher credit offtake still remains a million-dollar question. However the report mentions that the sensitively of the lending rates to further changes in the Bank Rate is now relatively weak. This may be a pointer towards the fact that we are at the bottom as far as the interest rates are concerned.
2. Cash Reserve Ratio slashed by 25 bps to 4.75 per cent, effective November 16, 2002
Implication: The reduction is more in line with the RBI's target of reducing the CRR to 3 per cent. The reduced CRR levels would release more money in the system, thereby adding to the already comfortable liquidity levels. If the credit offtake continues to be sluggish in near future, it will push down bond yields, thereby making the government borrowing cheaper.
3. Repo rate cut by 25 bps to 5.50 per cent.
Implication: Repo rate generally serves as a floor reference for the call money markets as well as a benchmark for short-term interest rates. This move could perhaps affect the returns of short-term debt funds.
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