It will be slightly cheaper to borrow money from the banks. The Royal Monetary Authority in a news release today reduced the single minimum lending rate or MLR by 0.4 percentage points. The single MLR for the past six months stood at 6.92 per cent. MLR is a single benchmark or minimum reference rate for lending of money across financial institutions.
The central bank calculates the single MLR by averaging the minimum lending rates of individual banks. Accordingly, based on the new MLR, respective banks will now have to come up with revised lending rates for the next six months.
The MLR uses three parameters that are common in all banks. They are operating cost, marginal cost and cash reserve requirement (CRR).
Operating cost is expenses incurred in the day-to-day operation of the business. The marginal cost of funds is the money spent to mobilize additional units of deposits and borrowings.
CRR is a minimum amount of deposit, which banks need to hold as reserves with the central bank.