Even as Navratri ushers in the festival season, Reserve
Bank of India has eased more money into the system to help banks offer
affordable lending options to retail customers.
RBI
cut the interest rate on Marginal Standing Facility (MSF) by 50 basis
points to 9 per cent. MSF is the rate at which banks borrow funds
overnight from RBI against approved government securities. Also, banks
can now borrow money from RBI for one-week and two-weeks. This new offer
of extended period loans is also expected to further ease liquidity in
the system. This will also boost the government’s efforts to pump-prime
the economy by lending to consumers at a lower rate of interest.
These
measures come in the wake of a gradual stability in the rupee and point
towards a seemingly combined effort by both the central bank and the
government to pep up demand in the crucial festive season.
The rupee volatility had prompted RBI to tighten liquidity by raising the MSF rate.
However,
since the September policy review, it began a calibrated unwinding of
these exceptional measures, reducing MSF by 75 basis points from 10.25
per cent, while increasing the repo rate to 7.50 per cent. Repo rate is
the rate at which banks borrow funds from the central bank.
By
rolling down the MSF rate by another 50 basis points, RBI, perhaps, is
indicating that it is comfortable with the current level of the rupee.
JAI MAHAKAL
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