RBI’s cash reserve stunner was a V3R prod for banks
- RBI’s shock imposition of an incremental cash reserve ratio was a sharp message for lenders that preferred to sit on excess funds instead of joining variable reverse repo rate (V3R) auctions.
The Reserve Bank of India (RBI) has always maintained that it has several instruments at hand to address issues relating to monetary conditions. While market sentiment is guided largely by its policy rate actions, it has often surprised by using these tools from time to time. There was, for instance, the innovative Standing Deposit Facility (SDF) introduced to absorb overnight liquidity without involving government securities (GSecs), which made it better than its overnight reverse repo window.