Cautious stance

RBI does well to focus on managing excess liquidity

The Reserve Bank of India (RBI) has acted in line with expectations by keeping unchanged the repo rate, the rate at which the central bank lends to the banking system, at 6.25 per cent. But what surprised the markets was the decision to narrow the policy rate corridor from 50 basis points to 25 bps; the reverse repo rate, the rate for banks when they park funds with the RBI, has been increased to 6 per cent. This shows the central bank’s welcome focus on tackling the deluge of liquidity in the system. This will be good news for banks