What changed
The fixed repo rate under the Liquidity Adjustment Facility was increased by 25 basis points from 4.75% to 5.0%, effective March 20, 2010. Consequently, the standing liquidity facilities—export credit refinance for banks and collateralised liquidity support for primary dealers—will be priced at the revised repo rate.
What it means for you
Banks and primary dealers will face higher borrowing costs for these standing facilities, directly impacting their liquidity management and net interest margins. This signals RBI's intent to tighten monetary policy, likely to curb inflationary pressures, and may lead to a gradual increase in lending rates for end borrowers.
What you must do
- Review your bank's reliance on export credit refinance and assess the impact of the 25 bps hike on funding costs.
- Communicate the revised rate to treasury and ALCO teams for immediate liquidity planning.
- Evaluate the need to adjust lending rates or deposit rates to maintain net interest margins.
- Monitor RBI's future policy actions for further rate changes and adjust liquidity buffers accordingly.
Who it affects
All scheduled banks (excluding RRBs) availing export credit refinance, Primary dealers using collateralised liquidity support, Treasury and ALCO teams managing short-term liquidity
What is the effective date of the new repo rate?
The revised repo rate of 5.0% applies from March 20, 2010, as stated in the circular.
Does this change affect all standing liquidity facilities?
Yes, the circular specifies that both export credit refinance for banks and collateralised liquidity support for primary dealers will be available at the revised repo rate.
Are Regional Rural Banks covered by this circular?
No, the circular explicitly excludes Regional Rural Banks from its scope.