What changed
The Monetary Policy Committee increased the policy repo rate under the Liquidity Adjustment Facility by 50 basis points, from 4.90% to 5.40%, effective immediately. Consequently, the standing deposit facility rate rose to 5.15% and the marginal standing facility rate to 5.65%.
What it means for you
Banks will face higher cost of funds as borrowing from RBI becomes more expensive. Lending rates, especially those linked to the repo rate, will likely rise, impacting loan demand and net interest margins. The move signals RBI's continued focus on controlling inflation.
What you must do
- Review and adjust your lending rates, especially repo-linked loans, to reflect the new repo rate.
- Reassess liquidity management strategies given the higher SDF and MSF rates.
- Communicate the rate change to customers and update loan sanction letters accordingly.
- Monitor impact on asset quality and demand for credit in the coming months.
Who it affects
All scheduled commercial banks, Primary dealers, Borrowers with floating rate loans, Treasury departments of banks
When did this repo rate hike take effect?
The hike was effective immediately from August 5, 2022, as announced in the Monetary Policy Statement.
What are the new SDF and MSF rates?
The standing deposit facility rate is now 5.15% and the marginal standing facility rate is 5.65%.
Are any other terms of the LAF scheme changing?
No, all other terms and conditions of the existing LAF scheme remain unchanged.