The Reserve Bank of India in its circular dated 17th April 2020 has decided to reduce the interest rate on fixed rate reverse repo under the Liquidity Adjustment Facility (LAF) by 25 basis points from 4.00 per cent to 3.75 per cent with immediate effect.
However, the policy repo rate remains unchanged at 4.40%, and the marginal standing facility rate and the bank rate remain unchanged at 4.65%. LAF is used to help banks adjust the mismatches in liquidity by enabling them to quickly borrow money in case of any emergency.
The policy measures taken by the RBI will sizeably expand liquidity in the system, which will ensure that financial markets and institutions are able to function normally in the face of COVID-19 related dislocations.
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