What changed
The repo rate under LAF was increased from 6.50% to 6.75%, and the reverse repo rate from 5.50% to 5.75%, both by 25 basis points. All other LAF scheme terms remain unchanged.
What it means for you
Banks will face higher cost for overnight borrowing from RBI, squeezing net interest margins if lending rates aren't adjusted. The reverse repo hike makes parking surplus funds more attractive, potentially reducing credit flow. This signals RBI's intent to curb inflation, so you should review your asset-liability management and loan pricing strategies.
What you must do
- Review and adjust your MCLR and base rate to reflect higher funding costs.
- Reassess liquidity management to optimize use of the LAF window.
- Communicate rate changes to treasury and credit teams for alignment.
- Monitor inflation data and RBI guidance for further policy moves.
Who it affects
All scheduled commercial banks (excluding RRBs), Primary dealers, Treasury departments, Loan and deposit pricing teams
When did this rate change take effect?
The hike was announced on March 17, 2011, and took effect immediately from that date.
What are the new repo and reverse repo rates?
The repo rate is now 6.75% and the reverse repo rate is 5.75%, each increased by 25 basis points.
Does this affect any other LAF terms?
No, all other terms and conditions of the LAF scheme remain unchanged as per the circular.