Moving On

The reversal comes after the bank raised the reverse repo rate by 10 basis points on Thursday in line with the bank
quote s new policy of making regular changes to its key discount rates, to make it more responsive to market developments.

rnThe bank on Wednesday cut rates by 50 basis points, lowering the repurchase (repo) rate to 11.50 percent and the reverse repo rate to 13.50 percent on.

rnThe bank left the repo rate unchanged at 11.50 percent today.

rnDealers said the Rs. 5.3 bn shortfall in the overnight call money market had prompted the bank to marginally raise the reverse repo rate today.

rnrnThe bank warned on Wednesday, that monetary policy would remain tight, despite periodically shifting its grip on interest rates.

rnThe rate change comes despite a slight downward pressure on the rupee since Wednesday morning.

rnrnEarly trading sent the US dollar up against the rupee to trade at 95.43 levels before dipping to 95.10-15 levels. The dollar is currently trading at 95.25-30 to 95.35 to the rupee, dealers said.

rnrnHowever, dealers say the pressure on the rupee is unlikely to ease, in the run up to the April New Year season, due to higher demand for dollar to meet import bills.

rnrnThe repo-rate is the key benchmark, which sets the floor in the overnight call money market, as it enables lenders to invest excess funds in treasury bills and bonds held by the Central Bank (i.e. at near zero risk). It is also the Central Bank
quote s main instrument of signalling the expected direction of overall interest rates to the market.

rnThe reverse repo-rate is the rate at which primary dealers in treasury bills and commercial banks can obtain overnight funds from the Central Bank by pledging their treasury bill/bond holdings as collateral.rn