What changed
The fixed repo rate under the Liquidity Adjustment Facility was reduced by 100 basis points from 6.5% to 5.5% with immediate effect. Consequently, the standing liquidity facilities provided to banks (export credit refinance) and Primary Dealers (collateralised liquidity support) will be available at the revised repo rate of 5.5% from January 3, 2009.
What it means for you
Banks and Primary Dealers will now get cheaper liquidity from RBI, reducing their cost of funds for export credit refinance and collateralised support. This rate cut is part of RBI's broader easing cycle to support economic activity during the global financial crisis. Lower borrowing costs should help banks pass on benefits to exporters and improve overall liquidity conditions.
What you must do
- Update your treasury systems to reflect the new repo rate of 5.5% for all standing liquidity facilities effective January 3, 2009.
- Review your export credit refinance availed from RBI to ensure interest calculations align with the revised rate.
- Communicate the rate change to your export credit and treasury teams for accurate pricing and reporting.
- Assess the impact on your net interest margin and liquidity position given the cheaper funding source.
Who it affects
All Scheduled Banks (excluding RRBs), Primary Dealers, Export credit refinance borrowers, Treasury departments of banks and PDs
What is the new repo rate under LAF?
The fixed repo rate has been reduced by 100 basis points from 6.5% to 5.5% with immediate effect from January 2, 2009.
From when will the standing liquidity facilities be available at the new rate?
The standing liquidity facilities for banks (export credit refinance) and Primary Dealers (collateralised liquidity support) will be available at the revised repo rate of 5.5% from January 3, 2009.