What changed
The repo rate under LAF was reduced by 25 basis points from 8.00% to 7.75% with immediate effect. Consequently, the reverse repo rate automatically adjusted to 6.75% and the MSF rate to 8.75%. All other terms of LAF and MSF schemes remain unchanged.
What it means for you
Banks can now borrow from RBI at a lower cost, which may reduce their lending rates over time. The 25 bps cut signals RBI's intent to support growth while keeping liquidity conditions stable. Lenders should reassess their marginal cost of funds and loan pricing strategies.
What you must do
- Update your treasury systems and internal lending rate benchmarks to reflect the new repo rate of 7.75%.
- Communicate the rate change to your asset-liability management (ALM) team for impact on NIMs.
- Review your loan pricing models and consider passing on the benefit to borrowers to boost credit demand.
- Ensure compliance with revised reverse repo and MSF rates for daily liquidity management.
Who it affects
All scheduled commercial banks (excluding RRBs), Primary dealers, Treasury and ALM departments, Retail and corporate loan customers
When did this repo rate cut take effect?
The cut was effective immediately from January 29, 2013, as announced in the Third Quarter Review of Monetary Policy 2012-13.
What are the new reverse repo and MSF rates?
The reverse repo rate is now 6.75% and the MSF rate is 8.75%, both adjusted automatically due to the repo rate change.
Are any other terms of LAF or MSF changing?
No, all other terms and conditions of the current LAF and MSF schemes remain unchanged.