The move comes just three days ahead of half-yearly monetary policy review on Oct 24.
The Indian central bank has already taken a number of measures over the last one month to augment domestic and forex liquidity.
However, the global financial situation continues to be uncertain, and India too is experiencing the indirect impact as reflected by some signs of strain in our credit markets in recent weeks, the RBI said.
On Sunday, the South Korean government announced a rescue package for its financial system by assuring $100 billion of lenders' foreign-currency debts and providing $30 billion in US dollars to banks.
Markets are reacting positively as and when authorities announce financial relief packages, but the positive effect is always short-lived.
Economists and analysts expect global market volatility to continue in the weeks and perhaps months ahead, because of the tremendous weakness in the world economy.
Investors are taking every opportunity to stay liquid on concerns the credit expansion will fail to stem the crisis and may not avert a recession. Traders, on the other hand, are profiting from the increased volatility.
However, the outlook is important to long-term investors who adopt a buy and hold strategy in the stock market. They are likely to suffer an extended period of low or zero growth.
CLSA has reduced India's GDP growth outlook to 6.5 per cent in view of considerable decline in the IIP for last couple of months.
India's Index of Industrial Production for August slipped to a 10-year low at 1.3 per cent compared to 10.9 per cent in the year-ago period.
Investors are taking every opportunity to stay liquid on concerns the credit expansion will fail to stem the crisis and may not avert a recession. Traders, on the other hand, are profiting from the increased volatility.
However, the outlook is important to long-term investors who adopt a buy and hold strategy in the stock market. They are likely to suffer an extended period of low or zero growth.
CLSA has reduced India's GDP growth outlook to 6.5 per cent in view of considerable decline in the IIP for last couple of months.
India's Index of Industrial Production for August slipped to a 10-year low at 1.3 per cent compared to 10.9 per cent in the year-ago period.
So where will we head now?
“Sensex has breached through 10000 levels which was a psychological support for the markets. Failure to take support at 10000 on closing basis for couple of trading sessions would test 9000 in short term. Declining money flow signals strong selling pressure. In the long term, failure of 9000 would offer a target of 6000 where we have seen double bottom in 2005," said Shyam Bhagwat, fund manager at Spark Fund Management.
“The Dow Jones displays a sort-term pennant, signalling continuation of the down-trend. Massive volatility reflected by the wide range of 8000 to 10000. Downward breakout would test the 2002 low of 7300. In the long term, the band of support between 7000 and 7300 represents the 50 per cent retracement level for Fibonacci followers. The money flow is downward. But be wary of bullish money flow divergence if it accompanies a sharp V-bottom on price chart," Bhagwat added.
Speaking on the precious metal, Akansha Dohi, analyst at Flexion Capital Management Services, “spot gold broke through medium-term support at $820 per ounce. Failure to test the upper border of the descending broadening wedge warns of a downward breakout. The money flow is signalling strong selling pressure. The target for breakout below $700 is the June 2006 low of $550.”
Meanwhile, crude oil is 50 per cent off its speculative July high. According to the bulls, emerging economies like India and China are still in second innings of the consumption cycle. But with oil fields impossible to find these days, the bears argue that a weak global economy reduces demand and sends prices lower.
“Crude oil is testing the band of support at $70 per barrel. Expect a short retracement, but the level unlikely to hold as the global economy heads towards the recession. Failure would test the 2007 low of $50 a barrel," said Anand Panchal, CEO-Globe One Advisory.
Do the global leaders continue on the same road as before and attempt further monetary stimulation and credit expansion to soften the landing? Or do they allow the market to find its own equilibrium interest rate and allow the necessary fall in prices--deflation--in order to restore market stability?
The first option may soften the landing, but will also raise inflation, prevent the restoration of market stability, and condemn us to a lengthy period of stagflation (low growth accompanied by high inflation) that could last for decades.
The second is more desirable, because it would herald the return to responsible fiscal policy and a relatively stable business cycle, without the exaggerated boom-bust of recent years.
“The Dow Jones displays a sort-term pennant, signalling continuation of the down-trend. Massive volatility reflected by the wide range of 8000 to 10000. Downward breakout would test the 2002 low of 7300. In the long term, the band of support between 7000 and 7300 represents the 50 per cent retracement level for Fibonacci followers. The money flow is downward. But be wary of bullish money flow divergence if it accompanies a sharp V-bottom on price chart," Bhagwat added.
Speaking on the precious metal, Akansha Dohi, analyst at Flexion Capital Management Services, “spot gold broke through medium-term support at $820 per ounce. Failure to test the upper border of the descending broadening wedge warns of a downward breakout. The money flow is signalling strong selling pressure. The target for breakout below $700 is the June 2006 low of $550.”
Meanwhile, crude oil is 50 per cent off its speculative July high. According to the bulls, emerging economies like India and China are still in second innings of the consumption cycle. But with oil fields impossible to find these days, the bears argue that a weak global economy reduces demand and sends prices lower.
“Crude oil is testing the band of support at $70 per barrel. Expect a short retracement, but the level unlikely to hold as the global economy heads towards the recession. Failure would test the 2007 low of $50 a barrel," said Anand Panchal, CEO-Globe One Advisory.
Do the global leaders continue on the same road as before and attempt further monetary stimulation and credit expansion to soften the landing? Or do they allow the market to find its own equilibrium interest rate and allow the necessary fall in prices--deflation--in order to restore market stability?
The first option may soften the landing, but will also raise inflation, prevent the restoration of market stability, and condemn us to a lengthy period of stagflation (low growth accompanied by high inflation) that could last for decades.
The second is more desirable, because it would herald the return to responsible fiscal policy and a relatively stable business cycle, without the exaggerated boom-bust of recent years.
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