What changed
The MPC reduced the policy repo rate under LAF by 25 basis points from 6.25% to 6.00%. Consequently, the Standing Liquidity Facility extended to Primary Dealers is now priced at the new repo rate of 6.00%, with immediate effect.
What it means for you
Primary Dealers will now access collateralised liquidity from RBI at a lower cost, improving their funding economics. This aligns with the broader monetary easing stance and may encourage PDs to increase market-making activity. For banks, lower repo rates typically reduce their own borrowing costs and can influence lending rates downward over time.
What you must do
- Update internal systems to reflect the new repo rate of 6.00% for SLF transactions with PDs.
- Review liquidity management strategies to account for cheaper PD funding, which may affect interbank rates.
- Communicate the rate change to treasury and dealing teams for accurate pricing of LAF-related operations.
- Monitor PD borrowing patterns under SLF to gauge market liquidity conditions post-rate cut.
Who it affects
Primary Dealers, Treasury departments of banks, RBI's LAF counterparties, Market liquidity managers
What is the Standing Liquidity Facility for Primary Dealers?
It is a collateralised liquidity support provided by RBI to Primary Dealers, now priced at the repo rate. The rate cut reduces their cost of funds.
When does the new rate take effect?
The revised repo rate of 6.00% applies with immediate effect from April 9, 2025, as announced in the bi-monthly monetary policy.
Does this affect banks directly?
Yes, indirectly. Lower repo rates reduce the cost of funds for PDs and can influence overall money market rates, impacting banks' liquidity and lending rates.