What changed
The Monetary Policy Committee reduced the policy repo rate under the Liquidity Adjustment Facility by 25 basis points from 6.50% to 6.25% with immediate effect. Consequently, the Standing Liquidity Facility provided to Primary Dealers is now priced at the new repo rate of 6.25%.
What it means for you
Primary Dealers will now pay lower interest on collateralised liquidity support from RBI, reducing their funding costs. This aligns with the broader monetary easing stance and may improve liquidity conditions in the government securities market. Banks and PDs can expect slightly cheaper access to short-term funds, potentially easing pressure on lending rates.
What you must do
- Update internal systems to reflect the new 6.25% repo rate for SLF transactions with immediate effect.
- Review liquidity management strategies to take advantage of lower borrowing costs from RBI.
- Communicate the rate change to treasury and dealing teams handling PD operations.
- Monitor market reactions and adjust short-term funding plans accordingly.
Who it affects
Primary Dealers, Treasury departments of banks, Market makers in government securities, RBI's liquidity operations team
What is the new repo rate effective from February 7, 2025?
The repo rate has been reduced by 25 basis points from 6.50% to 6.25% with immediate effect.
Does this change affect only Primary Dealers?
The notification specifically applies the revised rate to the Standing Liquidity Facility for Primary Dealers, but the repo rate cut impacts all LAF operations.
When did this change take effect?
The change is effective immediately from February 7, 2025, as announced in the bi-monthly Monetary Policy Statement.