Chinmaya IAS Academy – Current Affairs Chinmaya IAS Academy – Current Affairs
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Repo transmission taking 2-3 months against the 6 months earlier, says Das
The financial system is “hugely surplus” with liquidity, Reserve Bank of India Governor Shaktikanta Das said on Monday, adding that this would facilitate better transmission of rate cuts implemented by the central bank. “You have to keep in mind the fact that from June 1 onwards, the system is more than adequately surplus in liquidity,” Mr. Das said at a press conference following a post-Budget meeting of the RBI Board with Finance Minister Nirmala Sitharaman. “Today, as we speak, the system liquidity is hugely surplus and we have also announced a liquidity backstop for the banks to implement the NBFC package which the Finance Minister announced in the Budget.”
“When there is adequate liquidity, it always facilitates better transmission,” Mr. Das added. “So, I would expect in the coming weeks and months, that we would see better transmission taking place.” The Governor said that a positive development taking place recently is that the banks are taking a shorter time to transmit the repo rate cuts implemented by the RBI. “In the last Monetary Policy Committee meeting, by that time 50 basis point repo rate cut had already been announced and out of this 21 basis points had been transmitted,” Mr. Das said. “One positive thing that is happening is that earlier it used to take six months for the transmission to happen. Now, it is taking a much shorter period of 2-3 months.” In the last meeting, the RBI announced a further repo rate cut of 25 basis points, which took the total cut to 75 basis points over three consecutive meetings. The RBI is collecting the data regarding the transmission of the latest rate cut, the Governor said. Mr. Das said that it was a very positive development that the government had cut its fiscal deficit target for financial year 2019-20 to 3.3% from the earlier 3.4%. “The RBI will always be happy when the fiscal deficit is maintained,” Mr Das said. “And this time, the fiscal deficit has been improved actually to 3.3%. The RBI will be happy mainly because it completely limits the so-called crowding-out effect.”
