What changed
The Monetary Policy Committee increased the policy repo rate under LAF by 50 basis points from 5.40% to 5.90%. Consequently, the SDF rate moved to 5.65% and the MSF rate to 6.15%, effective immediately.
What it means for you
Banks will face higher cost of funds from RBI as borrowing via repo becomes more expensive. Lending rates are likely to rise, impacting loan demand and net interest margins. The MSF and SDF adjustments provide clear corridors for overnight liquidity management.
What you must do
- Review and adjust your bank's lending and deposit rates to reflect the new repo rate.
- Reassess liquidity management strategies considering the revised SDF and MSF corridors.
- Communicate rate changes to customers and update loan pricing models accordingly.
- Monitor market reactions and adjust treasury operations for the new rate environment.
Who it affects
All LAF participants including scheduled commercial banks, Primary dealers, Borrowers with floating rate loans, Treasury and asset-liability management teams
What is the new repo rate effective from September 30, 2022?
The repo rate has been increased by 50 basis points to 5.90% with immediate effect.
How have the SDF and MSF rates changed?
The SDF rate is now 5.65% and the MSF rate is 6.15%, both effective immediately.
Are there any other changes to the LAF scheme?
No, all other terms and conditions of the LAF scheme remain unchanged.