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% with immediate effect. Consequently, the Standing Liquidity Facility provided to Primary Dealers is now available at the revised repo rate of 5.40%.
What it means for you
Primary Dealers will face higher borrowing costs for collateralised liquidity support from RBI, directly impacting their funding expenses. This aligns with the broader monetary tightening stance to contain inflationary pressures. Banks and PDs must reassess their liquidity management and pricing strategies in response to the rate hike.
What you must do
- Update internal systems to reflect the new SLF rate of 5.40% for Primary Dealers.
- Review liquidity contingency plans and borrowing costs for PD operations.
- Communicate the rate change to treasury and dealing teams for immediate implementation.
- Assess impact on bond yields and market liquidity given the 50 bps hike.
Who it affects
Primary Dealers, Treasury departments of banks, RBI's Liquidity Adjustment Facility participants
What is the new repo rate effective from August 5, 2022?
The repo rate has been increased by 50 basis points to 5.40% per annum with immediate effect.
How does this affect the Standing Liquidity Facility for Primary Dealers?
The SLF for Primary Dealers is now priced at the revised repo rate of 5.40%, making collateralised liquidity support more expensive.