The RBI, in it’s policy yesterday(April 06, 2016), reduced rates by 0.25%. The new rates are: The Repo rate is 6.5% (from 6.75%) The Reverse Repo rate is 6% ( up from 5.5%) The MSF drops from 7.75% to 7%. The idea is both to reduce rates and the corridor of rates (which used to be 1% – Reverse repo was 1% below, MSF 1% above) Read: What is the Marginal Standing Facility? Liquidity Infusion by the RBI Instead of maintaining large overnight borrowing from banks (money taken by them one evening and returned the next day) which has been going on for two years now, RBI will add money to banks by directly buying bonds outright (or dollars) from the market. This does a complex things for banks – it gives them money in the same manner that QE works in the west – where the central bank prints money to buy bonds and gives money to banks (who they buy these bonds from).… (Read On…)
[via Capital Mind]
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