Banks may lend to MSMEs at higher rate if RBI raises Reverse Repo rate

New Delhi, 24 Nov (KNN) It is reported that the Reserve Bank of India (RBI) may increase the reverse repo rate by a token 20-25 basis points during its next monetary policy meeting.

Reserve repo rate is a rate at which the Central Bank borrows from the commercial banks, and it is used to control the money supply.

Currently, the rate is at 3.35 per cent, and if it is increased then commercial banks will be interested in investing more with RBI, the apex bank than lending money in the market of which MSME is a part of.

Hence, the changes in reserve repo rate must be monitored especially for the MSME sector which was badly hit by the second wave of pandemic and is still in need of financial assistance.

As per an economic research report by Goldman Sachs (GS), the RBI is currently in stage 2 (liquidity tightening) of the four-stage monetary policy normalisation process that began with ‘less dovish’ comments from monetary policy committee (MPC) members and will end with repo rate hikes.