BT Online Bureau Newe Delhi Last Updated: July 16, 2013 | 11:26 IST
Loans are set to get costlier as the Reserve Bank of India (RBI) is set to hike lending rates to commercial banks by 2 per cent to 10.25 per cent.
RBI Governor D Subbarao on Monday held a series of meetings about the country's economic situation, including a volatile currency , with Finance Minister P Chidambaram, Department of Economic Affairs Secretary Arvind Mayaram, newly appointed Additional Secretary KP Krishnan and Chief Economic Adviser Raghuram Rajan.
The central bank has announced a number of measures it plans to undertake in order to stem the rupee's fall against the US dollar. These include raising lending rates for commercial banks and conduct a sale of Government of India Securities on July 18 to suck up Rs 12,000 crore from the market.
RBI has also increased the marginal standing facility (MSF) rate to 10.25 per cent from 8.25 per cent. MSF allows banks to borrow money from the central bank at a higher rate when there is significant liquidity crunch.
The repo rate, however, has been left unchanged.
According to a central bank statement: "The MSF rate is calibrated with immediate effect to be 300 basis points above the policy repo rate under the liquidity adjustment facility (LAF)... Accordingly, the bank, rate also stands adjusted to 10.25 per cent with immediate effect."
According to the release, the overall allocation of funds under the LAF will be limited to 1 per cent of the net demand and time liabilities of the banking system, reckoned as Rs 75,000 crore for this purpose.
RBI has said it could take more measures in the future depending on market conditions, liquidity situation and macro-economic developments.
RBI Governor D Subbarao on Monday held a series of meetings about the country's economic situation, including a volatile currency , with Finance Minister P Chidambaram, Department of Economic Affairs Secretary Arvind Mayaram, newly appointed Additional Secretary KP Krishnan and Chief Economic Adviser Raghuram Rajan.
The central bank has announced a number of measures it plans to undertake in order to stem the rupee's fall against the US dollar. These include raising lending rates for commercial banks and conduct a sale of Government of India Securities on July 18 to suck up Rs 12,000 crore from the market.
RBI has also increased the marginal standing facility (MSF) rate to 10.25 per cent from 8.25 per cent. MSF allows banks to borrow money from the central bank at a higher rate when there is significant liquidity crunch.
The repo rate, however, has been left unchanged.
According to a central bank statement: "The MSF rate is calibrated with immediate effect to be 300 basis points above the policy repo rate under the liquidity adjustment facility (LAF)... Accordingly, the bank, rate also stands adjusted to 10.25 per cent with immediate effect."
According to the release, the overall allocation of funds under the LAF will be limited to 1 per cent of the net demand and time liabilities of the banking system, reckoned as Rs 75,000 crore for this purpose.
RBI has said it could take more measures in the future depending on market conditions, liquidity situation and macro-economic developments.
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