RBI cuts reverse repo rate by .25 basis point

RBI cuts reverse repo rate by .25 basis point

The Reserve Bank of India (RBI) has planned to supply Rs 1 lakh crore into the financial system as a part of its measures to help the economic activities sustain against the COVID-19 effect. A 0.25 basis point cut in the reverse repo rate is the other significant measure by the RBI.

RBI Governor Shaktikant Das announced the steps on Friday in the wake emerging threat to the economy due to the COVID pandemic. The pandemic is feared to force the Indian economy to go through the worst slowdown in years.

To ensure cash supply in the system, the RBI is reopening the Targeted Long Term Repo Operation (TLTRO).  Some Rs 50,000 crore will go into the system through the TLTRO route. As Mr. Das said, this fund would be mainly for the small and Mid-size NBFCs and MFIs. However, RBI is open to offering more TLTRO options in the future.

Besides, the central bank will release Rs 50,000 crore of refinancing opportunity to financial institutions, mainly engaged in agriculture, small industries, and rural housing. Of the Rs 50,000 crore, Rs 25000 crore will be for NABARD.  While Rs15000 crore and Rs 10000crore will go to SIDBI and NHB.  Due to the COVID made tight financial conditions, these financial institutions are struggling to raise resources from the market.

To add more, RBI has cut the reverse repo rate by 0.25 basis points to 3.75 percent. The lower gain from depositing in RBI would prompt the banks to invest or lend in more productive economic activities, reasons RBI.  Reverse repo rate is the interest the banks get from the RBI by parking their surplus money there. As per the RBI governor’s statement, there are Rs 6.9 lakh crore with the banks they gained due to government measures.

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