What is the MSF Rate?
The interest rate at which scheduled commercial banks experiencing a severe liquidity shortcoming get funding from the Reserve Bank of India is known as the Marginal Standing Facility (MSF) rate.
Because the MSF rate is different from the Repo rate, banks can pay the unique MSF rate to the RBI to access overnight cash. To maintain stability in the Indian economy, the RBI has the authority to modify the percentage and borrowing rate under MSF.
- Banks were able to access up to 1% of their net demand and time liabilities (NDTL) when the MSF rate was first introduced in May 2011; it was set 100 basis points higher than the Repo rate.
- To control the declining value of the Rupee, the MSF rate was raised to 300 basis points above the Repo rate in July 2013. Later, it was lowered to 50 basis points to make funding more easily accessible.
- The MSF rate is fixed at 6.25%, which is 25 basis points higher than the current Repo rate, as of the last modification to the RBI’s monetary policy, which took effect on October 4, 2017.
- The RBI modifies the MSF rate following changes in the country’s economic equilibrium.
Marginal Standing Facility – MSF Rate
Marginal Standing Facility or MSF is the rate at which banks borrow money overnight from the RBI in exchange for authorized government assets or securities. Established in 2011, this funding window helps lenders stay out of trouble and keep their cash flow in check. The MSF rate, however, is greater than the repo rate. This is important in emergencies, like when there is no interbank liquidity and the overnight interbank rate fluctuates.
Table of Content
- What is a Marginal Standing Facility?
- Working of Marginal Standing Facility:
- Why was MSF Introduced?
- What is the MSF Rate?
- What is the Current MSF Rate?
- Difference between MSF and Repo Rate
- Marginal Standing Facility Rate and its Effect on Rupee Strength:
- Conclusion
- FAQs On Marginal Standing Facility