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RBI Opens Up Money Market Access
The Reserve Bank of India (RBI) aims to strengthen its market infrastructure with new measures that deepen the term money market and enhance the role of primary dealers. This move is key to fostering a more robust and liquid financial system. The central bank highlighted that an active term money market is crucial for linking overnight interest rates with longer-term yields, which in turn makes monetary policy more effective.
Broader Participation in Money Market
Previously, access to the term money market was mainly limited to banks and standalone primary dealers. Now, a wider range of non-bank entities can participate, including All India Financial Institutions (AIFIs), non-banking financial companies (NBFCs), housing finance companies, and corporations. This expansion is expected to deepen the market and offer more funding options, improving overall liquidity conditions.
RBI Lifts Primary Dealer Borrowing Caps
In parallel, the RBI is increasing the borrowing limits for standalone primary dealers. These firms play a vital role in the government securities market. With increased borrowing capacity, the RBI expects them to take on a more active role in market management and the efficient distribution of liquidity. This should help interest rate changes spread more smoothly throughout the economy.
Policy Rate and Stance Unchanged
These adjustments were announced after the first bi-monthly policy review for the fiscal year. During this review, the Monetary Policy Committee kept the repo rate steady at 5.25 percent and maintained its neutral stance on monetary policy. The RBI will issue detailed operational guidelines for these new measures separately.