What changed
The fixed repo rate under the Liquidity Adjustment Facility was cut by 50 basis points to 5.0%, and the reverse repo rate was similarly reduced to 3.5%. These changes took effect from March 5, 2009, for all daily reverse repo and repo auctions, including special term repo auctions.
What it means for you
Banks can now borrow from RBI at a lower cost, reducing their funding expenses. The reverse repo rate cut makes parking funds with RBI less attractive, potentially encouraging banks to lend more. This dovish move aims to stimulate economic activity amid challenging global and domestic conditions.
What you must do
- Adjust your lending and deposit rates to reflect the lower policy rates.
- Review your liquidity management strategies to optimize borrowing and surplus deployment.
- Communicate the rate changes to your treasury and ALCO teams for immediate action.
- Monitor market reactions and adjust your asset-liability positions accordingly.
Who it affects
All scheduled commercial banks (excluding RRBs), Primary dealers, Treasury departments, ALCO teams
When do the new repo and reverse repo rates become effective?
The revised rates are effective from March 5, 2009, for all daily LAF auctions, including special term repo auctions.
What is the new repo rate after this cut?
The repo rate has been reduced by 50 basis points from 5.5% to 5.0%.
Does this change affect any other terms of the LAF scheme?
No, all other terms and conditions of the current LAF Scheme remain unchanged.