RBI may cut reverse repo rate again

RBI may cut reverse repo rate again

The Reserve Bank of India (RBI) may cut the reverse repo rate further as banks continue to increasingly deploy surplus funds with it despite the same being cut twice since March 27 to nudge them to lend. This deployment of funds with RBI is an indication of risk aversion and lack of credit appetite amid the COVID-19 pandemic.

Reverse repo rate, which is the interest rate that the central bank pays banks for parking surplus funds with it, has been cut twice -- from 4.90 per cent to 4 per cent on March 27 and from 4 per cent to 3.75 per cent on April 17 -- to encourage banks to deploy these surplus funds in investments and loans in productive sectors of the economy.

That banks are awash with liquidity is underscored by the fact that on May 5 and May 4, they collectively deployed Rs 8,53,282 crore and Rs 8,41,906 crore, respectively, at the reverse repo window.

The amount parked by banks under reverse repo operations on May 5 and May 4 is much higher that what they deployed (roughly about Rs 7.20 lakh crore daily, excluding Saturday and Sunday, after the last reverse repo rate cut).