• Rajat Kulshrestha

RBI Rates Analysis

Reserve Bank of India, lowers Cash Reserve Ratio (C.R.R.) from 4% to 3%:

Earlier- banks kept Rupees. 4 idle out of Rs. 100 worth of deposit inflows

Now- banks will have to keep only Rupees. 3 idle with them

(So banks can lend that extra Rupee. 1 to the borrower)

Reserve Bank of India lowers Re-purchase rate (Repo Rate) from 5.15% to 4.40%:

Earlier- banks borrowed funds from RBI at 5.15% Interest rates.

Now- banks will borrow funds from RBI at 4.40% Interest rates.

(So banks can borrow funds at a cheaper cost and ultimately lend more, this will create liquidity in the market and thus lead to the purchasing power of partiy.)

Reserve Bank of India lowers Reverse Repo Rate from 4.90% to 4%:

Earlier- banks earned 4.90% on deposits made with the RBI

Now- banks will earn only 4% from the deposits.

(So banks will not deposit funds with the Central Bank and will prefer lending funds to borrower, corporates, MSMEs, etc.)

All in all - approx 3,70,000 Crores worth of liquidity will be injected and money supply will be increased.

It is an advantage for all the businesses to revive after the corona threat is over. Another relief is a moratorium on loan installments.

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