Advertisement

Home / Business / RBI can roll back 100 basis points cut in cash reserve ratio

RBI can roll back 100 basis points cut in cash reserve ratio

The apex bank is set to announce its monetary policy on Friday where it is widely expected to hold the policy repo rate at four per cent because of  elevated inflation
The interest rate setting panel could look at other options as well. Analysts at Emkay said the RBI may consider introducing Standing Deposit Facility (SDF) by which participants can park surplus funds without any collateral.

Our Special Correspondent   |   Mumbai   |   Published 04.12.20, 04:04 AM

The RBI could roll back the 100 basis points cut in the cash reserve ratio (CRR) and come out with various other measures as it looks to soak up surplus liquidity that has resulted in money market rates slipping below the reverse repo rate.

The apex bank is set to announce its monetary policy on Friday where it is widely expected to hold the policy repo rate at four per cent because of  elevated inflation.

However, the focus has shifted to the liquidity management measures that it could take with risk averse banks parking close to Rs 6 lakh crore at the its reverse repo window.

Experts say the monetary policy committee (MPC) could reverse the reduction in CRR that was done in March. The RBI had then brought it down to 3 per cent which resulted in releasing liquidity of more than Rs 1 lakh crore into the system.

However, this might signal the RBI withdrawing its accommodative policy stance particularly after the economy has shown strong recovery signs.  The apex bank therefore will have to toe a careful line to continue with its growth agenda while mobilising the surplus liquidity.

The interest rate setting panel could look at other options as well. Analysts at Emkay said the RBI may consider introducing Standing Deposit Facility (SDF) by which participants can park surplus funds without any collateral.

They added that RBI can fix this rate a tad above reverse repo and that the facility can even be extended to non-banks such as  mutual funds and insurance thus creating an effective floor for the money markets. Additionally, the RBI may also consider longer tenor term reverse repos. 

Advertisement


Advertisement
Advertisement
Advertisement
 
 
 
Copyright © 2020 The Telegraph. All rights reserved.