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Reserve Bank of India hikes bank rate to 9.5% from 6%; policy stance unchanged

New Delhi: The Reserve Bank of India (RBI) has raised the bank rate, or the discount rate, to 9.5% from 6% with immediate effect, to align it with the marginal standing facility (MSF) rate, without altering its monetary policy stance.

The bank rate is a rate at which RBI buys or re-discounts bills of exchange or other commercial papers eligible for purchase.

"This should be viewed and understood as one-time technical adjustment to align the bank rate with the MSF rate rather than a change in the monetary policy stance," the central bank said in a late evening notification earlier Monday.

The MSF rate, an additional liquidity window for banks, is in turn linked to the key policy repo rate, or short term lending rate, under the Liquidity Adjustment Facility (LAF). The MSF is currently 100 basis points above the repo rate at 9.5%.

"Henceforth, whenever there is an adjustment of the MSF rate, the RBI will consider and align the bank rate with the revised MSF rate," it said.

The RBI had last changed the bank rate in April 2003, paring it by 25 basis points to a three-decade low of 6%.

"Being the discount rate, the bank rate should technically be higher than the policy repo rate. The bank rate has, however, been kept unchanged at 6% since April 2003. This was mainly (because) monetary policy signalling was done through modulations in the reverse repo rate and the repo rate," it added.