16/07/2013
Currency Concern:-The Indian rupee hit record low at 61.21 against the greenback on July 8 this year. Since last two month, it has lost more than 15 percent due to erosion of overseas investment in India.
RBI Measures:-
Measure One:
The central bank restricted banks' borrowing through liquidity adjustment facility (or a window to borrow funds from RBI called LAF) to the tune of 1 percent of total deposits or Rs 75,000 crore. It will be effective from July 17 when onwards, banks have to look for other options to meet their overnight fund requirements if the level reach the stipulated mark.
LAF is the combination of two auction routes: repo and reverse repo. While banks borrow from repo currently at 7.25 percent, they park their excess liquidity via reverse repo rate at 6.25 percent.
Measure Two:
Accordingly, RBI raised the interest rate of Marginal Standing Facility (MSF) by 100 bps to 10.25 percent as against 9.25 percent currently. Hence, the difference between repo rate and MSF stands at 300 basis points compared with 200 bps currently. Banks can borrow money pledging their excess SLR (Statutory Liquidity Ratio) bonds. Most of the banks are holding excess SLR above 23 percent. Hence, lenders can borrow money using MSF route.
