What changed
The policy repo rate under the Liquidity Adjustment Facility was increased by 50 basis points from 4.40% to 4.90% with immediate effect from June 8, 2022. Accordingly, the Standing Liquidity Facility (collateralised liquidity support) provided to Primary Dealers is now available at the revised repo rate of 4.90% from the same date.
What it means for you
Primary Dealers will face higher borrowing costs for collateralised liquidity from the RBI, directly impacting their funding expenses. This rate hike signals tighter monetary conditions, which may lead to higher short-term rates in the money market. Banks and PDs should reassess their liquidity management and funding strategies in response to the increased cost.
What you must do
- Update internal systems to reflect the new SLF rate of 4.90% for PD borrowings.
- Review liquidity contingency plans to account for higher funding costs.
- Communicate the rate change to treasury and dealing teams for accurate pricing.
- Monitor money market rates for spillover effects on other short-term instruments.
Who it affects
Primary Dealers, Treasury departments of banks, Money market participants
What is the new rate for the Standing Liquidity Facility for Primary Dealers?
The SLF rate is now 4.90%, effective June 8, 2022, following the 50 bps hike in the repo rate.
Does this change affect other RBI liquidity facilities?
This notification specifically applies to the SLF for Primary Dealers. Other facilities may be adjusted separately as per RBI guidelines.