The Reserve Bank of India (RBI) Governor Shaktikanta Das has said that the proposal of long-term repos to the tune of Rs 1 lakh crore are aimed at helping banks lower their lending rates, thus quickening the monetary policy transmission. At the sixth bi-monthly policy announcement, where the policy rates were left unchanged, the RBI announced long-term repurchase agreements (repos) of one-year and three-year tenors of appropriate sizes, totalling Rs 1 lakh crore at the policy repo rate, from the fortnight beginning on February 15.
Das said it can be noted that the longest repo that the RBI has so far done is of 56 days, while most of its either overnight or for a fortnight. And given this, the one-year and three-year repos are a new beginning for the monetary authority's effort to contain cost of money. He also said ‘it is an effort to ensure better monetary policy transmission because we are giving the funds at the policy rate. We want to inject Rs 1 lakh crore into the banking system that will enable banks to reduce their lending rates.’
The governor further said it can be noted that given the very tepid demand for fresh loans, the banking system is flushed with over Rs 2.5 lakh in surplus liquidity. Average credit growth till the last fortnight of January was a low 7.21 per cent. He added that the process of monetary policy transmission quickens when the banks get cheaper funds.
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