What changed
The repo rate under LAF was increased by 50 basis points from 7.5% to 8.0% with immediate effect. Consequently, standing liquidity facilities provided to banks and primary dealers are now priced at the new repo rate of 8.0%.
What it means for you
Banks and primary dealers will pay higher interest on funds accessed through standing liquidity facilities, directly increasing their cost of funds. This aligns with RBI's tightening stance to curb inflation, potentially leading to higher lending rates and reduced liquidity in the system.
What you must do
- Review and update your bank's internal lending and deposit rates to reflect the higher cost of funds.
- Reassess liquidity management strategies to minimize reliance on standing facilities at the higher rate.
- Communicate the rate change to treasury and credit teams for immediate impact on pricing and margins.
- Monitor RBI's future policy actions for further tightening signals.
Who it affects
All scheduled banks (excluding RRBs), Primary dealers, Treasury departments, Credit and lending teams
What is the new repo rate effective from July 26, 2011?
The repo rate was increased by 50 basis points from 7.5% to 8.0% with immediate effect.
Which facilities are impacted by this rate change?
Standing liquidity facilities for banks (export credit refinance) and primary dealers (collateralised liquidity support) are now available at the revised repo rate of 8.0%.