It will provide liquidity to banks to meet the requirements of MFs

The Reserve Bank of India (RBI) said on Wednesday that it would provide liquidity to banks to meet the liquidity requirements of mutual funds. The mutual funds are now facing redemption pressures from investors.

Contingency measure

“As a contingency measure, the RBI has decided to conduct a special three-day repo auction at an interest rate of 10.25 per cent for a notified amount of Rs.25,000 crore with a view to enabling banks to meet the liquidity requirements of mutual funds,” the apex bank said. Details of the facility are being announced separately.

“This facility will be made available for a temporary period until further notice,” it added.

As the RBI announced measures to tighten liquidity in the system to stem the fall of rupee, liquid and money market funds faced mark-to-market losses. “This obviously resulted in redemption pressures,” said K. Ramanathan, Executive Director and Chief Investment Officer of ING Investment Management Ltd.

In 2008 financial crisis also the RBI came out with similar facility to support mutual funds.

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