Mumbai: In a quiet step, the Reserve Bank of India (RBI) has succeeded in reducing the relevance of the reverse repo level.
Reverse Repo is a level where RBI borrows from the bank and sets the floor for the money market.
It will force the bank to find other ways to spread funds, including the Repo Repo Auction variable rate which is for longer duration but offers a higher refund.
According to bond dealers, this results in an increase in the floor rate as the ratio of repo variables has returned a 3.87% bank at the average due to 3.5% under the repo instead.
The central bank has succeeded in achieving this by simply changing the time of the reposition of the fixed level of the market hours to post-market hours.
In his credit policy statement, RBI Governor Shaktikanta Das announced that with the effect of March 1, 2022, the Repo Reverse Rate would only be available from 5.30pm to 11.59 pm.
In March 2020, to help banks handle pandemics, repo returned during 9am-11.59 PM.
The governor also suggested the bank to transfer the balance of the Reverse Rate Republican fixed into the variable rate reversing the repo auction and utilizing the coat and automatic sweeping facilities.
Since the pandemic breaks, the floor for money market money is set by a fixed reverse rate repo – a window where the bank can lend to the RBI if they don’t have a way to spread their funds.
It is expected to extensively that the RBI will climb the reverse repo level as part of the liquidity normalization on the market.
“Rates, whether it is a repo or repo reversed, reflective of the attitude that the RBI has been adopted.
When the attitude continues, we do not want to make changes or interference with things,” said the watershed.
Indicates that the weighted average repo level is 3.87%, he said, “We have achieved this in a way that is not intrusive and smooth.” Monetary policy review last week surprised the market with a dovish view of inflation.
According to bond dealers, with Dovish estimates, the RBI does not need to revise interest rates.