What changed
The fixed repo rate under the Liquidity Adjustment Facility was increased by 25 basis points from 7.75% to 8.00%, effective June 12, 2008. The reverse repo rate remains unchanged at 6.00%.
What it means for you
Borrowing from RBI via repo will cost banks 25 bps more, tightening liquidity and signaling a hawkish stance to contain inflation. Lending rates may rise as banks pass on higher costs, potentially slowing credit growth. The unchanged reverse repo rate keeps the corridor floor steady, limiting immediate impact on excess liquidity absorption.
What you must do
- Review and adjust your bank's lending and deposit rates to reflect the higher cost of funds.
- Reassess liquidity management strategies given the wider repo-reverse repo spread.
- Communicate the rate change impact to treasury and credit teams for updated pricing models.
- Monitor inflation trends and RBI guidance for further rate actions.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Primary Dealers, Treasury departments, Credit and lending teams
Why did RBI hike the repo rate in June 2008?
To contain inflation expectations amid current macroeconomic and monetary conditions.
What is the new repo rate and when does it take effect?
The repo rate is increased to 8.00% from 7.75%, effective June 12, 2008.
Did the reverse repo rate change?
No, the reverse repo rate remains unchanged at 6.00%.