What changed
The Bank Rate was lowered by 50 basis points to 9.0% from 9.5%, effective October 7, 2013. Consequently, penal interest rates on shortfalls in reserve requirements that are tied to the Bank Rate were revised downward: the rate for shortfalls now stands at Bank Rate plus 3.0 percentage points (12.00%) or Bank Rate plus 5.0 percentage points (14.00%), depending on the duration of the shortfall.
What it means for you
This reduction in Bank Rate directly lowers the cost of penal interest for banks that fail to meet reserve requirements, easing the financial burden on liquidity-stressed lenders. For banks, this could slightly improve net interest margins if they were incurring such penalties, but the broader signal is a modest easing in the monetary policy stance.
What you must do
- Update internal systems to reflect the new Bank Rate of 9.0% for all linked calculations.
- Revise penal interest rate schedules for reserve shortfalls to the new rates (12.00% or 14.00% as applicable).
- Communicate the revised rates to relevant treasury and compliance teams to ensure accurate reporting.
- Monitor liquidity positions to avoid shortfalls, as the penalty rates, though lower, remain significant.
Who it affects
All scheduled commercial banks, Local area banks, Treasury and compliance departments, Banks with frequent reserve shortfalls
What is the new Bank Rate effective from October 7, 2013?
The Bank Rate has been reduced by 50 basis points from 9.5% to 9.0%.
How do the revised penal interest rates on reserve shortfalls work?
Penal rates are now Bank Rate plus 3.0 percentage points (12.00%) or Bank Rate plus 5.0 percentage points (14.00%), depending on the duration of the shortfall.
Does this change affect all penal rates linked to Bank Rate?
Yes, all penal interest rates on shortfalls in reserve requirements that are specifically linked to the Bank Rate stand revised as per the annex.