MUMBAI - INDIA'S central bank cut its key short-term lending rate by one percentage point to 8.0 per cent in a bid to stabilise the country's ailing financial markets.
The cut in the repo rate at which the Reserve Bank of India lends funds to commercial banks came into effect immediately.
'India is experiencing the indirect impact of the global liquidity constraint as reflected by strains in our credit markets,' the bank said in a statement.
'In order to alleviate the pressures and, in particular, to maintain financial stability, the repo rate has been reduced,' it said.
The rate cut came after the bank had already announced a slew of measures this month to pump a total of 1.45 trillion rupees (S$43.85 billion) into the financial system to increase liquidity and spur growth.
The bank has cut the percentage of cash commercial banks must keep in reserve three times this month, reducing it to 6.5 per cent, to inject funds.
The decision to lower rates came just four days ahead of the central bank's scheduled monetary policy meeting. However, the bank frequently announces monetary decisions between policy meetings.
Stock and bond markets rallied on the rate cut.
Indian shares rose 2.69 per cent or 268.63 points to 10,243.98, after having lost more than five per cent in the past week.
'The global financial situation continues to be uncertain and unsettled,' the bank said.
'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,' the bank said. -- AFP
