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RBI Hikes Bank Rate From 6% to 9.5%

The Reserve Bank of India (RBI) has lifted their bank rate or the discount rate, from 6% to 9.5% to line up with the marginal standing facility (MSF), without changing the monetary policy stance.

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RBI Logo

The bank rate is the rate at which RBI buys or re-discounts bills of exchange or other commercial papers which are mandatory for purchasing. The Central Bank said during a late evening notification earlier on Monday, “This should be viewed as the one-time technical adjustment to adjust the bank rate with the MSF rate without creating any change with the monetary policy stance.”

The MSF rate, an additional liquidity window for the banks, is planning to link to the key policy repo rate, or short term lending rate, under the Liquidity Adjustment Facility (LAF). Currently, the MSF is 100 basis points over the 9.5%. “Whenever there will be any change in the MSF rate, the RBI will consider and adjust the bank rate with the new MSF rate,” RBI said.

RBI last changed its bank rate in April 2003, paired it with 25 basis points to a three-decade low of 6%. RBI also added, “Being the discount rate, technically the bank rate should be higher than the policy repo rate. But the bank rate was kept unchanged at 6% till April 2003. It was mainly because monetary policy signaling was done through the modulations in the reverse repo rate & repo rate.”

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