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RBI is saying: lend please. Banks are saying – no no no, money with you is safer

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If a tweet was all that was allowed to understand the Reserve Bank of India’s (RBI) announcement today on 17 April, 2020, it would read like this: RBI says ‘lend’ to banks.

Banks say: you are safer, we keep our money with you and big companies that already have money. RBI reduces interest on money banks keep in RBI (reverse repo down by 25 basis points), RBI gives ₹50,000 crore to banks and another ₹50,000 crore to SIDBI, NABARD to lend to MFIs and non-banking finance companies (NBFCs) through targeted long-term repo operations, or TLTRO 2.0.

Banks globally have a problem. They are not transmitting the money that central banks are providing to businesses that need the money.

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