MPC has agreed to reduce the policy repo rate by 75 basis points to 4.4 per cent. Policy rate corridor widened from 50 basis points to 65 bps. The fixed rate reverse repo rate, which sets the floor of the liquidity adjustment facility (LAF) corridor, was reduced by 90 basis points to 4.0 per cent, thus creating an asymmetrical corridor. The purpose of this measure relating to reverse repo rate is to make it relatively unattractive for banks to passively deposit funds with the Reserve Bank and instead, to use these funds for on-lending to productive sectors of the economy. On April 15, the amount absorbed under reverse repo operations was ₹6.9 lakh crore. In order to encourage banks to deploy these surplus funds in investments and loans in productive sectors of the economy, it has been decided to reduce the fixed rate reverse repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 4.0 per cent to 3.75 per cent with immediate effect. The policy repo rate remains unchanged at 4.40 per cent, and the marginal standing facility rate and the Bank Rate remain unchanged at 4.65 per cent.
As announced on March 27, the RBI undertook three auctions of targeted long term repo operations (TLTRO), injecting cumulatively ₹75,041 crore to ease liquidity constraints in the banking system and de-stress financial markets. Another TLTRO auction of ₹25,000 crore will be conducted on April 17. In response to these auctions, financial conditions have eased considerably, as reflected in the spreads on money and bond market instruments. Moreover, activity in the corporate bond market has picked up appreciably, with several corporates making new issuances. There are also indications that redemption pressures faced by mutual funds have moderated. It has been decided to conduct TLTRO 2.0 for an aggregate amount of ₹50,000 crore, to begin with, in tranches of appropriate sizes. The funds availed by banks under TLTRO 2.0 should be invested in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs, with at least 50 per cent of the total amount availed going to small and mid-sized NBFCs and MFIs. it has been decided to provide special refinance facilities for a total amount of ₹50,000 crore to NABARD, SIDBI and NHB to enable them to meet sectoral credit needs.
It has now been decided to increase the WMA limit of states by 60 per cent over and above the level as on March 31, 2020 to provide greater comfort to the states for undertaking COVID-19 containment and mitigation efforts, and to plan their market borrowing programmes better. The increased limit will be available till September 30, 2020.
Consistent with the globally coordinated action committed to by the Basel Committee on Banking Supervision to alleviate the impact of Covid-19 on the global banking system, additional regulatory measures are being announced.