A perfect storm had hit the world, so, how can India be indifferent to it? The impact of the crisis is so vast that, even the Finance minister had to cancel his scheduled trip to Washington.

According to a spokesperson, the decision was made, so that, government could prepare to unleash some more measures and encourage capital in flows into the market and ultimately prevent the liquidity crisis from hitting the Indian Financial System.

Now, the largest State-owned Bank, State bank of India, has come into action, earlier the SBI has launched a new special 1,000 day Fixed Deposit scheme. This was done in order to witness large inflow of money in the sector and that’s what actually happened, and in just 12 working days a sum of more then 5,000 corers came in.

Today, not even a single investor is left who doesn’t sweat on hearing the business related news. In the starting first five months there was a slow growth rate of 4.9% which itself represented the worst financial period in last 14 years, barring 1998 and 2001.

The rupee fell to a lifetime low of 49.26 against the US dollar in morning trade on 10th October before recovering to close at 48.47 on intervention by the Reserve Bank of India and sale of the greenback by local banks and exporters.

The fall in the rupee was due to the stock market crash on the sale of shares by foreign institutional investors (FIIs). This was the ninth week in a row when the rupee fell and a similar losing streak was last seen before June 2005.

Some efforts were required to be made in order to control the Indian market and therefore, the Reserve Bank of India (RBI) had again and again announced reduction in the cash reserve ratio (CRR), or the proportion of deposits that banks set aside, to inject more liquidity into the system.

In this month itself RBI has reduced the CRR three times, firstly a 50 basic points cut on 6th October, then, a 100 basic points cut on 11th October and finally on 15th October again a 100 points cut was made. In June 2003 CRR was lowered by 25 basis points to 4.50 per cent, but, since then no further cut down has been made by RBI.

The 150 basis point reduction is the steepest since 2001. The International stock markets and money markets have also been adversely affected in a significant manner, therefore, like RBI the Central banks across the world have responded to these extraordinary developments by synchronized policy actions including measures for liquidity infusion.

Please read previous part “An Overall view of the Global market” here.

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