Thread by @monikahalan

Thread on what the @RBI just did and what it means...
Rs 50,000 crore window of funds for mutual funds

RBI says that there is liquidity stress in the mutual fund debt funds and there is a threat of a contagion to other parts of the market. This stress is right now only in the higher risk paper, but the fear can spread. Therefore, opened a special window of Rs 50,000 crore for MFs

Who gets the money?
Banks can borrow "on tap" (whenever they need) at the repo rate (4.4% right now) from today (April 27th) till May 11 or till the funds run out, five days a week, excluding market holidays.

Banks can only use this money to:
1. lend to MFs
2. purchase investment grade paper (bonds and other names that essentially mean the same) held by MFs

@livemint

Why will banks do this?
They will borrow at 4.4 and lend at much higher rates to MFs
Why will MFs borrow?
They are facing redemptions and need the money to pay investors. The absence of a liquid market for lower than triple A rated paper (safest) makes them unable to do so.

The presence of Rs 50,000 crore will give a market for such bonds that are not triple A, but are yet investment grade and prevent freezing of funds as @FTIIndia did last week.

Great step by @RBI. This was done in 2009 to give the market confidence after the North Atlantic Financial Crisis caused a similar situation in the Indian bond market.
A little late I think. Should have done this last week. Stress had been building up for the last 10 days.