Central Bank of India unexpectedly lowers reverse repo rate to spur lending

US, WASHINGTON (ORDO NEWS) — The Reserve Bank of India (RBI) on Friday unexpectedly lowered its reverse repo rate for the second time in three weeks to stimulate the issuance of bank loans to support the country’s coronavirus-affected economy.

The reverse repo rate INRREP = ECI has been reduced by 25 basis points to 3.75%, said the head of the Indian Central Bank, Shaktikanta Das, during a video conference. At the end of March, the rate has already been reduced by 90 basis points.

“The excess liquidity in the banking system has grown significantly amid government spending and various measures to increase liquidity undertaken by RBI,” Das said.

“In order to encourage banks to use these surplus funds for investments and loans to the manufacturing sectors of the economy, it was decided to lower the rate of reverse repos,” he added.

In recent days, banks have placed over 6 trillion rupees ($ 78.44 billion) in the Central Bank through reverse repos. They are very cautious in issuing loans, as the Indian economy has slowed in the past few quarters.

The Central Bank maintained its key repo rate, INREPO = ECI, at 4.40% after falling 75 basis points on March 27.

On Thursday, Indian Prime Minister Narendra Modi extended the restrictive measures in the country until May 3, as the number of patients with coronavirus in India exceeded 10,000, despite a three-week quarantine.

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