Even as Navratri ushers in the festival season, Reserve Bank of India has eased more money into the system to help banks offer affordable lending options to retail customers.
RBI cut the interest rate on Marginal Standing Facility (MSF) by 50 basis points to 9 per cent. MSF is the rate at which banks borrow funds overnight from RBI against approved government securities. Also, banks can now borrow money from RBI for one-week and two-weeks. This new offer of extended period loans is also expected to further ease liquidity in the system. This will also boost the government’s efforts to pump-prime the economy by lending to consumers at a lower rate of interest.
These measures come in the wake of a gradual stability in the rupee and point towards a seemingly combined effort by both the central bank and the government to pep up demand in the crucial festive season.
The rupee volatility had prompted RBI to tighten liquidity by raising the MSF rate.
However, since the September policy review, it began a calibrated unwinding of these exceptional measures, reducing MSF by 75 basis points from 10.25 per cent, while increasing the repo rate to 7.50 per cent. Repo rate is the rate at which banks borrow funds from the central bank.
By rolling down the MSF rate by another 50 basis points, RBI, perhaps, is indicating that it is comfortable with the current level of the rupee.