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Economy

What is Marginal Standing Facility (MSF) ?

Marginal standing facility is a window for banks to borrow from Reserve Bank of India in emergency situation when inter-bank liquidity dries up completely.
Banks borrow from the central bank by pledging government securities at a rate higher than the repo rate under liquidity adjustment facility or LAF in short

What is Liquidity Adjustment Facility (LAF) ?

Reserve Bank of India’s liquidity adjustment facility of LAF helps banks to adjust their daily liquidity mismatches.
LAF has two components: repo (repurchase agreement) and reverse repo.

Repo Rate:

When banks need liquidity to meet its daily requirement, they borrow from RBI through repo. The rate at which they borrow fund is called the repo rate.

Reverse Repo Rate:

When banks are flush with fund, they park with RBI through the reverse repo mechanism at reverse repo rate.
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