What changed
The repo rate under the Liquidity Adjustment Facility (LAF) was increased by 25 basis points from 8.25% to 8.50% with immediate effect. Accordingly, the standing liquidity facilities provided to banks (export credit refinance) and Primary Dealers (collateralised liquidity support) are now available at the revised repo rate of 8.50%.
What it means for you
Banks will face higher costs for accessing export credit refinance from the RBI, directly impacting their funding costs for export-related lending. Primary Dealers will also see increased costs for collateralised liquidity support, potentially tightening liquidity conditions in the bond market. This rate hike signals RBI's intent to curb inflation, and banks may pass on higher costs to borrowers, particularly in export sectors.
What you must do
- Review your bank's export credit refinance availed and recalculate interest costs at the new 8.50% rate.
- Assess the impact on your lending rates for export credit and consider adjustments to maintain margins.
- Communicate the revised cost of funds to your treasury and credit departments for updated pricing models.
- Monitor liquidity conditions and adjust your LAF borrowing strategy accordingly.
Who it affects
All Scheduled Banks (excluding RRBs), Primary Dealers, Export credit borrowers (indirectly through higher lending rates)
What is the new repo rate effective from October 25, 2011?
The repo rate has been increased by 25 basis points from 8.25% to 8.50% with immediate effect.
Which standing liquidity facilities are impacted by this change?
The standing liquidity facilities for banks (export credit refinance) and Primary Dealers (collateralised liquidity support) are now available at the revised repo rate of 8.50%.
Are Regional Rural Banks (RRBs) affected by this circular?
No, the circular explicitly excludes Regional Rural Banks (RRBs) from its scope.