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umbai, October 6 With liquidity drying up and the Sensex plunging 42 per cent since it peaked in January, regulators today moved in to pump more cash into the system and lift the plunging morale of the market. Even as the BSE benchmark index crashed 725 points to a two-year low of 11,801.70, the Reserve Bank of India (RBI) cut the cash reserve ratio (CRR) the portion of deposits banks keep with the RBI by 50 basis points to 8.50 per cent. Simultaneously, the Securities and Exchange Board of India (SEBI) decided to lift curbs on participatory notes (PNs) used by foreign institutional investors to boost foreign capital inflows.
The surprise CRR reduction which comes after four years and 15 hikes between September (4.5 per cent) and August 2008 (9 per cent) will release about Rs 20,000 crore into the system. There has been a sharp deterioration in the global financial environment with the number of troubled financial institutions rising, stock markets weakening and money markets strained, the RBI said while cutting the CRR. Banks, however, said they will wait for action on the repo rate front on October 24 when RBI announces its busy season credit policy before touching interest rates
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