MUMBAI, Oct 6: India’s central bank injected liquidity into the financial system by cutting the amount of cash commercial banks must hold in reserve, citing “a sharp deterioration” in the world financial situation.

After a day of market turmoil, the bank lowered the cash reserve ratio (CRR) -- the percentage of cash commercial banks must set aside -- by 50 basis points to 8.50 per cent, as it sought to ease tight credit conditions that have hit economic demand.The Reserve Bank of India, which hitherto had made battling double-digit inflation its top aim, said ensuring enough cash in the system would take “priority in the hierarchy of policy objectives over the period ahead.” ”Central banks across the world have stepped up their liquidity operations,” said the Reserve Bank as it joined a host of other central banks around the world that have injected vast sums into the banking system since the collapse of Lehman Brothers in mid-September to try to head off a global recession.

The move, to take effect Oct 11, would inject some $4.2 billion into the financial system, the bank said.

The step came after many businesses had complained tight credit conditions were hurting demand and slowing growth.

The bank, which has been steadily tightening monetary policy since 2004 in a bid to douse inflation now at 11.99 per cent, said the measure was “temporary” and would be reviewed as liquidity conditions changed.

The bank took the step in light of the “evolving environment of heightened uncertainty,” it said.

“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,” it added.—AFP