What changed
The fixed repo rate under LAF was reduced by 100 basis points to 5.5%, and the reverse repo rate was cut by 100 basis points to 4%, effective from January 5, 2009. All other LAF terms remain unchanged.
What it means for you
Banks can now borrow from RBI at a lower cost, reducing their funding expenses. Lending rates may ease, potentially boosting credit demand, but net interest margins could compress if deposit rates don't adjust similarly.
What you must do
- Review your asset-liability management to align with lower policy rates.
- Consider repricing loans and deposits to maintain margins.
- Monitor liquidity conditions and adjust LAF participation accordingly.
Who it affects
All scheduled commercial banks (excluding RRBs), Primary dealers
When do the new rates take effect?
The revised repo and reverse repo rates apply from January 5, 2009, for daily LAF auctions.
Why did RBI cut rates by 100 bps?
The decision was based on a review of current global and domestic macroeconomic conditions.