Debt funds typically held 0-5 per cent of their portfolio in cash and cash equivalents before this Sebi diktat.
Two members recommended bringing down the rate by 50 bps in the April policy.
There's only a slim chance of a substantial drop.
All-out efforts are needed to mitigate the adverse impact of the Covid-19 pandemic, and the RBI will use any instrument necessary to revive growth and preserve financial stability, according to the minutes of the central bank's policy meeting.
RBI said at the current juncture, the all-out effort is to maintain and sustain, with the hope that when life is secure, resources, energy and time can be marshalled to rebuild and revive.
A CRR cut will help banks to reduce lending rates.
At least a 25 basis points hike can be expected on the October 5 policy
As per the data released by the NSO, the overall food inflation rose to 14.12 per cent in December as against (-) 2.65 per cent in the same month of 2018.
The new effective repo rate for the third quarter is now fixed at 7.25 per cent while CRR rate has revised to 4 per cent.
Avoid long-term debt funds for the next couple of months and track the direction of interest rates till October.
The big test will come at the end of March when the fiscal year ends and banks tend to hold on to cash.
Inflation target remains 5% for January 2017.
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Industry's demand for a reduction in the repo rate, currently 8 per cent, has gained momentum after wholesale and retail inflation eased in February.
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Analysts at Barclays pitched for a 0.25 per cent cut to generate demand advising the central bank to throw caution to the wind.
Should deposit growth continue to outpace credit growth, banks may end up ceding some hard-earned 25-50 bps improvement in profitability or net interest margin gained in the past two years.
The uncertainty created by the jump in COVID-19 infections and localised lockdowns prompted RBI Governor Shaktikanta Das and other members of the rating setting panel MPC to unanimously vote for status quo in interest rates and an accommodative policy stance to support growth, as per minutes of the meeting released on Thursday. "The need of the hour is to effectively secure the economic recovery underway so that it becomes broad-based and durable," the Governor said during the three-day meeting of the Monetary Policy Committee (MPC) which ended on April 7. The renewed jump in COVID-19 infections in several parts of the country and the associated localised and regional lockdowns add uncertainty to the growth outlook, he observed, as per the minutes of the meeting released by the central bank.
The career bureaucrat-turned-central banker walked into the 19th floor corner room of the Reserve Bank on December 12, 2018. Since February 2019, the Das-led RBI has cut the repo rate by a whopping 135 basis points to support the sagging growth, including an unprecedented 35 bps reduction in August. As he completes one year at the helm, woes in the NBFC sector, overall health of the banking sector and steeply falling economic growth are among the major challenges that needs to be tackled sooner than later.
None of the four benchmarks suggested by the RBI is ideal as banks in India create loan assets from their deposits and not borrowing from the regulator or market, says Tamal Bandyopadhyay.
Reserve Bank Governor Shaktikanta Das has pitched for policy support from all sides -- fiscal, monetary and sectoral -- to nurture recovery of the economy hit by the second wave of the coronavirus pandemic. The dent on economic activity due to the second wave of the pandemic during April-May necessitated continuation of monetary measures to support the process of economic recovery to make it durable, Das had said while participating in the meeting of the Monetary Policy Committee (MPC) earlier in the month. "Overall, the second wave of COVID-19 has altered the near-term outlook, and policy support from all sides - fiscal, monetary and sectoral - is required to nurture recovery and expedite return to normalcy," Das said, as per the minutes of the meeting released on Friday.
Analysts expect RBI to restore 100-bp corridor in Tuesday's policy review.
The RBI has this year cut interest rates by 110 basis points in four instalments but banks have passed only a part of it to borrowers. Before the last reduction earlier this month of 35 basis points, the bank on an average had passed only 29 basis points out of 75 basis points cut affected during 2019.
The central bank had nudged banks to cut lending rates.
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The S&P BSE Midcap and the S&P BSE Smallcap indices added 0.5% and 0.7%, respectively
The final guidelines to link the interest rate to external benchmarks will be issued by the end of this month
Costlier vegetables and eggs pushed up retail inflation to a nearly six-and-a-half year high of 7.61 per cent in October, keeping it significantly above the comfort zone of the Reserve Bank.
Rediff.com interviewed people from several walks of life to know their opinions on the rise in rates by RBI.
'The first year of the Modi government's second term has laid the roadmap for the future and we will embark on it with gusto,' promises Gopal Krishna Agrawal, the BJP's national spokesperson on economic affairs.
The central bank tweaked the retail inflation range to 4.8-4.9 per cent in the first half of 2018-19, and 4.7 per cent in the second half.
Rajan said the central bank has used up all its "space available" to cut interest rates
He did not believe in any fiscal puritanism. In 2012, when it was almost certain that the government will breach the 2012-13 fiscal deficit target, he wrote that in abnormal times, abnormal measures are required to get back to normalcy.
The central bank might raise repo and reverse repo rates by 25 basis points each, they said. Still, RBI action would be conditional on its ensuring sufficient liquidity in the banking system.
When looking for alternatives, consider several parameters -- your investment horizon and liquidity requirement, post-tax returns, and risk.
Banks led the decline with Nifty Bank and BSE Bank index dropping over 3% each.
The fifth meeting of Monetary Policy Committee maintained the repo rate, at which it lends to the banks, at 6.25 per cent and the reverse repo, at which it borrows, will be 6 per cent.
If banks have a surplus, they have the option of parking the money with the RBI.
The RBI wants CPI inflation to ease further to 6 per cent by January 2016.
The Reserve Bank on Friday projected retail inflation to be in 5-5.2 per cent range during the first half of the next fiscal year, expecting further softening of vegetables prices in near term. Also, it has lowered the retail inflation forecast for the current January-March quarter of 2020-21 fiscal at 5.2 per cent. The Reserve Bank (RBI) has kept the key policy rate unchanged at 4 per cent, with an accommodative stance, so as to ensure that inflation remains well within the target, Governor Shaktikanta Das said while announcing the last monetary policy of 2020-21.
After swinging 439 points during the day, the 30-share Sensex ended 141.33 points, or 0.38 per cent, lower at 37,531.98. It hit an intra-day low of 37,480.53 and a high of 37,919.47.
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