The rise and fall in interest rates is cyclical in an economy. The Reserve Bank uses short-term interest rates to regulate the economy.
Short-term interest rates have a direct impact on consumer loans. When the key interest rates are cut, loans become cheaper.
During a recession, the interest rates are cut so that borrowing becomes easier. People tend to spend more, this in turn boosts the economy.
The Reserve Bank and its counter parts in the US, UK, Japan, China have also cut rates to save the sinking economy.
Check out the interest rates in the world's leading nations and in countries were the crisis has hit the economy badly...
The Reserve Bank of India cut the repo rate or its key short-term lending rate by 50 basis points to 7.5% and banks' cash reserve requirements (CRR) by 100 basis points to 5.5 per cent.
The repo rate or the short term interest rate in India has varied between 6 to 16 per cent from 2000 to 2008.
GDP: $1.1 trillion
* All GDP figures have been sourced from data available on the Website of International Monetary Fund (IMF). All GDP figures are of 2007.
Image: Governor of The Reserve Bank of India D Subbarao attends a meeting with bankers in Mumbai.| Photograph:Indranil Mukherjee/AFP/Getty Images
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