Current · Source: Reserve Bank of India · RBI/2010-2011/501 · issued 03 May 2011 · ~1 min read
Quick answerRBI raised the repo rate by 50 bps to 7.25% and set the reverse repo rate at 6.25% (100 bps below repo), effective immediately from May 3, 2011, as part of the Annual Monetary Policy 2011-12.
The rule, in the simplest words
RBI raised the repo rate (the rate at which banks borrow money from RBI) by 50 basis points (0.50%) to 7.25%, starting May 3, 2011.
The reverse repo rate (the rate at which banks lend money to RBI) is always 100 basis points (1%) lower than the repo rate, so it became 6.25%.
This makes borrowing from RBI more expensive for banks, so banks will likely increase their own lending rates to customers.
A branch operations officer in Indore, Priya, sees the repo rate hike to 7.25% and knows her bank will soon raise its lending rates. She calls her top customer, a local jeweler, to explain that their floating-rate gold loan's interest will go up next month, advising them to lock in a fixed rate now to avoid higher costs.
What changed
The repo rate under the Liquidity Adjustment Facility was increased by 50 basis points from 6.75% to 7.25%, effective immediately. Consequently, the reverse repo rate, which is set at a spread of 100 bps below the repo rate, moved to 6.25%. All other terms and conditions of the LAF scheme remained unchanged.
What it means for you
This rate hike signals RBI's tightening stance to curb inflation, increasing the cost of funds for banks borrowing from the central bank. Banks will likely pass on higher costs to customers through increased lending rates, potentially slowing credit demand. The wider repo-reverse repo spread maintains the corridor for short-term rates.
What you must do
Review and adjust your bank's lending and deposit rates to reflect the higher repo rate.
Reassess liquidity management strategies given the increased cost of LAF borrowing.
Communicate the rate change impact to treasury and ALCO teams for immediate action.
Monitor credit demand and repricing of loan portfolios in response to higher rates.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Primary Dealers, Treasury and ALCO teams, Borrowers with floating rate loans
❓ Common questions
Why did RBI hike the repo rate by 50 bps in May 2011?
The hike was part of the Annual Monetary Policy 2011-12, aimed at controlling inflation by tightening monetary conditions.
What is the new reverse repo rate after this change?
The reverse repo rate is set at 100 bps below the repo rate, so it stands at 6.25% with immediate effect.
Does this change affect any other LAF terms?
No, all other terms and conditions of the current LAF Scheme remain unchanged.
📜 Read the original circular — full text as issued by RBI
RBI/2010-2011/501
FMD.MOAG. No.58/01.01.01/2010-11
May 3, 2011
All Scheduled Commercial Banks (excluding RRBs) and Primary Dealers
Dear Sir,
Liquidity Adjustment Facility – Repo and Reverse Repo Rates
As announced today in the Annual Monetary Policy 2011-12 , it has been decided to increase the repo rate under the Liquidity Adjustment Facility (LAF) by 50 basis points from 6.75 per cent to 7.25 per cent with immediate effect.
2. Further, as announced in the Policy, the reverse repo rate under the LAF, determined with a spread of 100 basis points below the repo rate, will stand at 6.25 per cent with immediate effect.
3. All other terms and conditions of the current LAF Scheme will remain unchanged.
4. Please acknowledge receipt.
Yours sincerely
(G. Mahalingam)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2010-2011/501 · issued 03 May 2011. The plain-English explanation above is BankPulse’s own independent summary.
Example: if you are a Compliance officer at a bank this circular applies to (All Scheduled Commercial Banks (excluding RRBs), Primary Dealers, Treasury and ALCO teams, Borrowers with floating rate loans), your first concrete step on “Repo Rate Hiked 50 bps to 7.25% in May 2011” is: “Review and adjust your bank's lending and deposit rates to reflect the higher repo rate.” (RBI issued this 03 May 2011).
Circular: RBI/2010-2011/501 -- Repo Rate Hiked 50 bps to 7.25% in May 2011
Issued: 03 May 2011
Action required: Review and adjust your bank's lending and deposit rates to reflect the higher repo rate.
Action required: Reassess liquidity management strategies given the increased cost of LAF borrowing.
Action required: Communicate the rate change impact to treasury and ALCO teams for immediate action.
Action required: Monitor credit demand and repricing of loan portfolios in response to higher rates.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=6377&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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