What changed
The Monetary Policy Committee increased the policy repo rate under the Liquidity Adjustment Facility by 35 basis points, from 5.90% to 6.25%, effective immediately. As a result, the Standing Liquidity Facility (collateralised liquidity support) provided to Primary Dealers is now available at the revised repo rate of 6.25%.
What it means for you
Primary Dealers will face higher borrowing costs for collateralised liquidity from the RBI, directly impacting their funding costs and margins. This rate hike signals continued monetary tightening, which may lead to higher short-term rates in the money market and influence PDs' bidding behaviour in government securities auctions.
What you must do
- Update internal systems to reflect the new repo rate of 6.25% for all SLF transactions with Primary Dealers.
- Communicate the revised SLF rate to your treasury and dealing teams immediately.
- Review your liquidity management and borrowing strategies in light of the higher cost of funds.
- Monitor money market rates for potential spillover effects on other short-term instruments.
Who it affects
Primary Dealers, Treasury departments of banks dealing with PDs, RBI's Monetary Policy Department
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 does this change affect the Standing Liquidity Facility for Primary Dealers?
The SLF, which is collateralised liquidity support from the RBI, will now be available at the revised repo rate of 6.25% instead of the earlier 5.90%.