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RBI may cap reverse repo rate to ensure liquidity translates into credit

RBI may cap reverse repo rate to ensure liquidity translates into credit

The Reserve Bank of India (RBI) is not in favour of banks parking huge amounts of funds at its reverse repo window, and may not hesitate to impose a cap on it to ensure systemic liquidity translates into credit for industry.

“While it is for the banks to decide whom they want to lend, it can’t be that they continue to park huge amounts at the reverse repo window,” said a source.

This is, in effect, the sharpest follow-up to RBI Governor Shaktikanta Das’ statement last Friday, drawing attention to the Rs 6.9 trillion being absorbed under its reverse repo operations, and a systemic liquidity surplus averaging Rs 4.36 trillion during March 27-April 14, 2020. And that the slash in the reverse repo rate by 25 basis points (bps) to 3.75 per cent “is to encourage banks to deploy these surplus funds in investments and loans in productive sectors of the economy”.

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