In a surprise move, the Reserve Bank of India (RBI) on Friday announced a 40 basis points cut in its main policy rates, along with a slew of other targeted measures aimed at helping an economy battered by the covid crisis.
With the latest cuts, the repo and reverse repo rates now stand at 4% and 3.35%, respectively. The latter rate, which is the interest RBI pays banks for parking their funds with it, has been in greater use of late.
This is because there is excessive liquidity in the banking system—a lot of money coming in with very little being lent. Under such circumstances, it is the reverse repo that assumes importance.
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