While the Reserve Bank of India (RBI) has decided to keep rates unchanged during the sixth bimonthly review of the monetary policy on Thursday, it has taken steps to lower interest rates in the economy.

To improve credit flow to sectors such as home and auto loans and also to micro, small and medium enterprises, the RBI has said lenders have been exempted from maintaining cash reserve ratio (CRR) for the incremental credit extended between January 31 and July 31. Banks have to maintain CRR at 4% of their net demand and time liabilities at present.

“Alongside sustained efforts to improve monetary transmission, the Reserve Bank is actively engaged in revitalising the flow of bank credit to productive sectors having multiplier effects to support impulses of growth,” the RBI said.

The central bank also decided that from the fortnight beginning February 15, the RBI will conduct term repos of one-year and three-year tenors for up to a total of ₹1 lakh crore at the policy repo rate. The move, aimed at improving monetary transmission, will help banks raise funds at the repo rate viz. 5.15%. “Since June 2019, the RBI has ensured that comfortable liquidity is available in the system in order to facilitate the transmission of monetary policy actions and flow of credit to the economy. These efforts are being carried forward with a view to assuring banks about the availability of durable liquidity at a reasonable cost,” the RBI said. Banks have, so far, reduced interest rate by 69 bps in response to a 135 bps rate cut by the RBI between February and October 2019.

“The masterstroke by the RBI is the announcement of long-term repo operations of one-year and three-year tenors for up to ₹1 lakh crore at repo rates. This a step towards credit transmission and demonstrates the RBI’s intent towards supporting growth,” said Lakshmi Iyer, CIO (debt) and head of products, Kotak Mahindra AMC. “Also, CRR exemption for incremental lending to auto, housing and MSMEs is a good way to channelise credit to areas where demand has not met commensurate supply,”