RBI Extends Fixed Rate Reverse Repo and MSF Window

Amid the lockdown, the whole nation is going through tough timings, and so is our economy suffering. RBI had come forward with a step and has further extended the Fixed Repo Reverse Rate and Marginal Standing Facility window on all days to facilitate much more flexibility in liquid management to eligible market participants. 

Previously, it was declared to be followed from 31st March 2020 to 30th April 2020 and is now extended further until any official notice due to the increasing pandemic effect of COVID-19 as announced by Yogesh Dalal, the Chief General Manager of RBI. 

Click Here to Check Official Press Release by RBI  

In view of the impacts of disruptions which are been caused by COVID-19 to the nation and rapidly evolving financial conditions, this step has been approached as an interim measure to extend the window timings of Fixed Rate Reverse Repo and MSF operations which will be a great hand towards the eligible market participants by increasing the greater flexibility in their liquidity management. Apart from revising timing, all other terms, and conditions for the liquidity adjustment facility will remain the same as earlier. 

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The fixed-rate Reverse Repo operation is where any commercial bank can park their excess funds with the RBI for attaining an overnight interest. The RBI had worked towards this operation and allowed round the clock facility for parking their excessive funds and lend the same funds for productive purposes only for liquidity management during this global crisis condition. 

Now the banks can borrow additional liquidity under an emergency window named as a marginal standing facility (MSF) as announced by RBI. The central bank has also allowed round-the-clock money transfer under NEFT application. The RBI’s new window which is exclusively for the purpose of liquidity settlement, might be helpful in relieving some sort of pressure significantly and the revised timings are as such:

Operations Old timing New timing
Reverse Repo Rate 17:30 hrs to 23:59 hrs 09:00 hrs to 23:59 hrs
Marginal Standing Facility 17:30 hrs to 23:59 hrs 09:00 hrs to 23:59 hrs

Also on April 27, 2020, where the Reserve Bank of India had announced a special liquidity facility for mutual funds (SLF-MF) in order to ease the liquidity strains on Mutual Funds (MFs). This is done with the perspective of waking up the redemption pressures that are related to the closure of some debt Mutual funds. 

On account of the global crisis, banks have been permitted to maintain the Liquidity Coverage Ratio up to 80% till 31st September 2020 and 100% till 1st April 2020. This may be revised on the account of COVID-19, but till now these are the decided dates.  

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As dictated by RBI in the statement of Developmental and Regulatory Policies that was passed on 27th March 2020, the Reserve Bank had conducted Target Long Term Repo Operations of Rs 1,00,000 crore for three year tenor period. To support the economy during the pandemic COVID-19 crisis, RBI Governor Mr. Shaktikanta Das has announced to infuse about Rs 3.74 lakh crore liquidity on an aggregate basis into the nation’s financial systems to cope up with the COVID-19 pandemic smoothly.

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