RBI to introduce slash in CRR and guarantee liquidity

Reserve Bank of India kept its policy rates consistent in order to guarantee liquidity for the bond market and promising a guaranteed hand as long as needed. Banks would now be able to take away the credit handout to the new medium and small-scale borrowers from their net demand and time liabilities in order to calculate CRR. After the announcement of the policy changes the Repo Rate at which the RBI lends to the banks stood at 4 percent and the Reserve Repo Rate at which the money is returned by the banks to the RBI stood at 3.35 percent. The Cash Reserve Ratio through which the banks are obliged to maintain a certain reserve with the RBI at zero percent interest would be increased to 4 percent in two trials. 

In view of the pandemic, the CRR was scaled down by 1 percentage point and had to be rolled back to an initial 4 percent. Hence effective immediately the CRR would be revised to 3.5 percent from 3 percent on March 27 and further would be scaled to 4 percent on May 22. No relaxations had been provided to the utter amazement of the bond market in order to further relieve the pain in the market. 12 trillion of borrowing has been allowed by the government in the Budget for the next fiscal year and an extra amount of Rs 80,000 crore for this year. A huge amount for subordinate borrowing market had been anticipated though to the dismay of the people that did not happen. The bond capitulate has jumped up at least 15 basis points since there was an announcement of an additional 12 trillion for the next financial year. RBI Governor Shaktikanta Das was quoted as saying” Perpetrating to ensuring the accessibility of ample exchangeability in the system and thereby promoting compatible financial conditions for the recovery to gain friction”. 

 

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