What changed
The fixed repo rate under the Liquidity Adjustment Facility was reduced by 100 basis points from 9.0% to 8.0%, effective immediately. Special term repo and Second LAF repo will also operate at 8.0% from October 20, and all LAF repos from October 21, 2008. The reverse repo rate remains unchanged at 6.0%.
What it means for you
This sharp rate cut signals RBI's aggressive response to global liquidity tightening, aiming to lower borrowing costs for banks and stimulate lending. Banks can now access cheaper funds from RBI, potentially reducing their cost of funds and encouraging credit flow to the economy. The unchanged reverse repo rate keeps the corridor between repo and reverse repo at 200 bps, maintaining a clear policy signal.
What you must do
- Review your bank's funding costs and adjust lending rates accordingly to pass on the benefit to borrowers.
- Reassess liquidity management strategies to optimize use of the cheaper repo window.
- Communicate the rate cut impact to treasury and credit teams for updated pricing and risk assessments.
- Monitor market reactions and adjust investment portfolios, especially in government securities.
Who it affects
All scheduled commercial banks (excluding RRBs), Primary dealers, Treasury departments, Corporate and retail borrowers
Why did RBI cut the repo rate by 100 bps in October 2008?
To alleviate emerging pressures from the indirect impact of global liquidity constraints, making funds cheaper for banks.
Does this change affect the reverse repo rate?
No, the reverse repo rate remains unchanged at 6.00%.
When does the new repo rate take effect for all LAF repos?
Special term repo and Second LAF repo from October 20, 2008, and all LAF repos from October 21, 2008.