As a contingency measure, the Reserve Bank of India has decided to conduct a special three-day repo at an interest rate of 10.25% for a notified amount of Rs. 25,000 crore with a view to enabling banks to meet the liquidity requirements of the mutual fund industry.
This facility will be made available for a temporary period until further notice.Commenting on the same, G Pradeepkumar, CEO , Union KBC Mutual Fund, said the Reserve Bank had provided a similar liquidity window for MFs during the 2008 financial crisis.
He feels MFs may be able to tide over the liquidity stress in the markets as short-term interest rates have surged and fund houses have received large redemptions in their liquid and short-term funds. "Panic selling on account of redemptions and subsequent sharp spike in the money market rates are expected to be curtailed. The repo window is likely to reduce the volatility and allow the money markets to settle down."
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