Drop in Repo rate

The Reserve Bank of India (RBI) lowered the repo rate,(the rate at which it lends to banks), by 100 basis points to 8 per cent(earlier 9 %).A reduction in the repo rate will lower the cost of funds for banks. In recent weeks there are signs of strain in the credit markets which had an indirect impact in the global liquidity."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. Effective October 11, the cash reserve ratio or the proportion of deposits that banks set aside, has been lowered 250 basis points to 6.50 per cent to inject around Rs 100,000 crore liquidity into the system. Further, a special window has been opened to allow banks to access up to

Rs 25,000 crore from RBI against their farm debt relief arrears. In RBI's first liquidity adjustment facility session today, there were no bids from banks to borrow funds through the repo window. Thanks to the RBI's steps the liquidity conditions in the markets have eased a little with the weighted average call rate, according to data on the Clearing Corporation of India.