What changed
The Monetary Policy Committee raised the policy repo rate under the Liquidity Adjustment Facility by 35 basis points, from 5.90% to 6.25%, effective December 7, 2022. Consequently, the standing deposit facility rate was adjusted to 6.00% and the marginal standing facility rate to 6.50%, both with immediate effect. All other terms and conditions of the LAF scheme remain unchanged.
What it means for you
Banks will face higher borrowing costs from the RBI, which will likely be passed on to customers through increased lending rates. The SDF and MSF rate adjustments ensure the corridor remains aligned, impacting overnight liquidity management. Lenders should prepare for tighter liquidity conditions and potential margin compression as deposit rates may also rise.
What you must do
- Review and update your bank's lending and deposit rate structures to reflect the new repo rate of 6.25%.
- Communicate the rate changes to treasury and ALCO teams for immediate liquidity planning.
- Assess the impact on your bank's net interest margin and adjust asset-liability management strategies accordingly.
- Prepare for potential customer queries on loan EMIs and deposit rates following the hike.
Who it affects
All LAF participants including scheduled commercial banks, Treasury and ALCO teams, Retail and corporate borrowers, Depositors
What is the new repo rate effective from December 7, 2022?
The repo rate has been increased by 35 basis points to 6.25% per annum with immediate effect.
How have the SDF and MSF rates changed?
The standing deposit facility rate is now 6.00% and the marginal standing facility rate is 6.50%, both effective immediately.
Are there any other changes to the LAF scheme?
No, all other terms and conditions of the existing LAF scheme remain unchanged.