The Reserve Bank of India (RBI) has upped the Ways and Means Advances (WMA) limit for the first half of the financial year 2020-21 (April 2020 to September 2020) to ₹1.20-lakh crore from ₹75,000 crore in the year-ago period.

This hike in limit comes in the wake of expectation that the central government will step up expenditure in the social sector, including health and sanitation, following outbreak of the Covid-19 pandemic.

The central bank provides financial accommodation to the government to tide over temporary mismatches in cash flow as WMA. This is intended to provide a cushion to the government to carry on its essential activities and normal financial operations.

The RBI said it may float fresh market loans when the government utilises 75 per cent of the WMA limit.

The central bank, in a statement, said it retains the flexibility to revise the limit at any time, in consultation with the Government of India, taking into consideration the prevailing circumstances.

The interest rate on the WMA is the repo rate, which is currently 4.40 per cent. The interest rate on the overdraft is 2 per cent over the repo rate or 6.40 per cent.