What changed
The repo rate under the Liquidity Adjustment Facility (LAF) was increased by 25 basis points from 7.50% to 7.75%, effective immediately. Consequently, the reverse repo rate automatically adjusted to 6.75%.
What it means for you
This rate hike signals tighter monetary policy to control inflation, increasing the cost of funds for banks borrowing from RBI. Banks may pass on higher costs to customers through increased lending rates, potentially slowing credit demand. The automatic reverse repo adjustment maintains the corridor spread.
What you must do
- Review your bank's lending and deposit rate pricing to reflect the higher repo rate.
- Communicate the rate change impact to treasury and ALM teams for liquidity planning.
- Assess the effect on your bank's net interest margin and loan portfolio repricing.
- Update internal systems and customer communications for any rate-linked products.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Standalone Primary Dealers, Treasury and ALM departments, Borrowers with floating rate loans
When did this repo rate hike take effect?
The hike was effective immediately from October 29, 2013, as announced in the Second Quarter Review of Monetary Policy 2013-14.
What is the new reverse repo rate after this change?
The reverse repo rate automatically adjusted to 6.75% following the repo rate increase to 7.75%.
Did any other terms of the LAF change?
No, all other terms and conditions of the current LAF scheme remained unchanged.