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Reduction in reverse repo rate is used by the RBI to control liquidity and inflation in the economy

To mitigate any economic fallout on financial liquidity due to Covid-19 pandemic, the Reserve Bank of India on Friday announced a set of new measures including a reduction in reverse repo rate.

Accordingly, the rate now stands at 3.75 per cent of LAF. The reverse repo is an important monetary policy tool used by the Reserve Bank to control liquidity and inflation in the economy.

Under the Reverse Repo Rate, banks deposit excess funds with the RBI and earn interest for it.

The move is expected to encourage banks to ease lending and investments into the economy.

Announcing the slew of measures via online channels, RBI Governor said that policy repo rate would for now be maintained at 4.4%.

Furthermore, he announced other measures such as going in for TLTRO 2.0 and re-financing facilities for critical institutions. Together these would mean additional liquidity to the tune of Rs 1 lakh crore with Rs 50,000 crore as TLTRO 2.0 and Rs 50,000 crore refining support to NABARD, NHB and SIDBI.


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