Context
The Reserve Bank of India (RBI) decided to continue with the existing interim Ways and Means Advances (WMA) scheme limit of ?51,560 crore for all States/ UTs shall for six months i.e., up to September 30, given the prevalence of COVID-19.
What is Ways and Means Advances (WMA) Scheme?
- The scheme is simply a facility for both the Centre and states to borrow from the Reserve Bank of India.
- These borrowings are meant purely to help them to tide over temporary mismatches in cash flows of their receipts and expenditures. In that sense, they aren’t a source of finance per se.
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Section 17(5) of the RBI Act, 1934 authorizes the central bank to lend to the Centre and state governments subject to their being repayable “not later than three months from the date of the making of the advance”.
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What about ‘interest rate’ on WMA?
- The interest rate on WMA is the RBI’s repo rate, which is basically the rate at which it lends short-term money to banks.
- That rate is currently 4% (as per 7th April 2021).
Repo Rate
- Repo Rate, or repurchase rate, is the key monetary policy rate of interest at which the central bank or the Reserve Bank of India (RBI) lends short term money to banks.
- The Reserve Bank of India uses the Repo rate to signal the monetary policy, and reviewing from time to time is a part of the policy.
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