What changed
The repo rate under the Liquidity Adjustment Facility was increased by 25 basis points from 7.75% to 8.00%, effective immediately. Consequently, the reverse repo rate automatically adjusted to 7.00%.
What it means for you
Banks will face higher borrowing costs from RBI, potentially leading to increased lending rates for customers. This tightening aims to curb inflation but may slow credit growth. Lenders must reassess their asset-liability management and pricing strategies.
What you must do
- Review and adjust lending and deposit rates in line with the new repo rate.
- Reassess liquidity management and ALM positions to account for higher funding costs.
- Communicate rate changes to customers and update product pricing accordingly.
- Monitor inflation trends and RBI's future policy signals for further adjustments.
Who it affects
All scheduled commercial banks (excluding RRBs), Standalone primary dealers, Borrowers with floating-rate loans, Depositors
When did this repo rate hike take effect?
The hike was effective immediately from January 28, 2014, as announced in the Third Quarter Review of Monetary Policy 2013-14.
What is the new reverse repo rate?
The reverse repo rate automatically adjusted to 7.00% following the repo rate increase to 8.00%.
Are any other LAF terms changing?
No, all other terms and conditions of the current LAF scheme remain unchanged.