Bank deposit rates can come down in coming weeks too, says KMAMCs Lakshmi Iyer
The RBI Governor Shaktikanta Das Friday announced a new set of measures in response to the current growth and financial market stress. These measures are mostly aimed at easing pressure on the lower rated/smaller participants of the financial markets.
The RBI Governor Shaktikanta Das Friday announced a new set of measures in response to the current growth and financial market stress. These measures are mostly aimed at easing pressure on the lower rated/smaller participants of the financial markets. The major announcement pertains to a further widening of the liquidity adjustment facility corridor with the reverse repo rate being cut by a further 25 bps to 3.75 per cent. Repo rate (the mandate of the Monetary Policy Committee) and the marginal standing facility rate are kept constant.
Following the cut in reverse repo rate, you can also expect the bank deposit rates to come down as well, believes Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company (KMAMC).
“The announcement of TLRTO 2 directed towards the NBFC sector is a much need initiative given the covid related moratorium optionality that this sector had to offer its borrowers. This should allow for more broad based availability of liquidity under this facility. The 25 bps cut in reverse repo would help bring down the short term rates by 25-50 bps as the banking system continues to be in surplus liquidity mode. We could see reduction in bank deposit rates too in the coming weeks,” she said.
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The RBI has also enhanced the Ways and means advance (WMA) facility for by 60 per cent (instead of the 30 per cent) announced earlier, available till September 30. Also, the liquidity coverage ratio (LCR) has been temporarily reduced to 80 per cent. Other measures are as follows:
A new targeted long term repo (TLTRO) for Rs 50,000 crores has been announced directed at NBFCs. This has to be in investment grade instruments and 50 per cent has to be allocated to small and midsize NBFCs and MFIs. Deployment has to be within 1 month and the investment can be under additional held to maturity (HTM), as before. Also exposure will not count under the large exposure framework.
All India financial institutions (FIs) NABARD, SIDBI, and NHB will get a cumulative special refinance facility for INR 50,000 crores at the RBI`s repo rate.
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