In a bid to improve liquidity in the banking system, RBI on Monday cut the Marginal Standing Facility (MSF) rate by 50 basis points to 9%.
NEW DELHI: In a bid to improve liquidity in the banking system, Reserve Bank of India (RBI) on Monday cut the Marginal Standing Facility (MSF) rate by 50 basis points to 9%.
Starting with the Mid-Quarter Review of September 2013, RBI began a calibrated withdrawal of exceptional measures undertaken since July 2013. This was done with a view to normalising liquidity conditions. Accordingly, the MSF rate was reduced by 75 basis points from 10.25 per cent to 9.5 per cent.
According to the RBI press release, open market purchase operations of Rs. 9,974 crore were conducted on Monday to inject liquidity into the system. "On a review of evolving liquidity conditions and in continuation of this calibrated unwinding, it has been decided to reduce the MSF rate by a further 50 basis points from 9.5 per cent to 9.0 per cent with immediate effect," the release said.
RBI will also provide additional liquidity through term repos of 7-day and 14-day tenor for a notified amount equivalent to 0.25 per cent of net demand and time liabilities (NDTL) of the banking system through variable rate auctions on every Friday beginning October 11, 2013. "The notified amount and tenor of the term repo auctions will be announced prior to the dates of the auctions. Detailed guidelines regarding term repos are being issued separately," the central bank said.
On September 20, RBI Governor Raghuram Rajan shocked investors by raising the key repo rate by a quarter point to fight inflation living up to the Chicago School's anti-inflation tradition, even as he partially rolled back some of the liquidity tightening measures to fight the currency slide.
The Reserve Bank of India raised repo rate or the rate at which it lends to banks by 25 basis points to anchor inflation and inflationary expectations. The repo rate is increased to 7.5% from 7.25% with immediate effect.
"The need to anchor inflation and inflation expectations has to be set against the fragile state of the industrial sector and urban demand. Keeping all this in view, bringing down inflation to more tolerable levels warrants raising the repo rate by 25 basis points immediately," Rajan said in the mid-quarter policy review statement.
RBI reduced minimum daily maintenance of the cash reserve ratio from 99% of the requirement to 95%. RBI said that any further change in the minimum daily maintenance of the CRR is not contemplated.
Stating that economic growth has weakened with continuing sluggishness in industrial activity and services, the RBI said the pace of infrastructure project completion is subdued and the start of new projects remains muted.
Starting with the Mid-Quarter Review of September 2013, RBI began a calibrated withdrawal of exceptional measures undertaken since July 2013. This was done with a view to normalising liquidity conditions. Accordingly, the MSF rate was reduced by 75 basis points from 10.25 per cent to 9.5 per cent.
According to the RBI press release, open market purchase operations of Rs. 9,974 crore were conducted on Monday to inject liquidity into the system. "On a review of evolving liquidity conditions and in continuation of this calibrated unwinding, it has been decided to reduce the MSF rate by a further 50 basis points from 9.5 per cent to 9.0 per cent with immediate effect," the release said.
RBI will also provide additional liquidity through term repos of 7-day and 14-day tenor for a notified amount equivalent to 0.25 per cent of net demand and time liabilities (NDTL) of the banking system through variable rate auctions on every Friday beginning October 11, 2013. "The notified amount and tenor of the term repo auctions will be announced prior to the dates of the auctions. Detailed guidelines regarding term repos are being issued separately," the central bank said.
On September 20, RBI Governor Raghuram Rajan shocked investors by raising the key repo rate by a quarter point to fight inflation living up to the Chicago School's anti-inflation tradition, even as he partially rolled back some of the liquidity tightening measures to fight the currency slide.
The Reserve Bank of India raised repo rate or the rate at which it lends to banks by 25 basis points to anchor inflation and inflationary expectations. The repo rate is increased to 7.5% from 7.25% with immediate effect.
"The need to anchor inflation and inflation expectations has to be set against the fragile state of the industrial sector and urban demand. Keeping all this in view, bringing down inflation to more tolerable levels warrants raising the repo rate by 25 basis points immediately," Rajan said in the mid-quarter policy review statement.
RBI reduced minimum daily maintenance of the cash reserve ratio from 99% of the requirement to 95%. RBI said that any further change in the minimum daily maintenance of the CRR is not contemplated.
Stating that economic growth has weakened with continuing sluggishness in industrial activity and services, the RBI said the pace of infrastructure project completion is subdued and the start of new projects remains muted.
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