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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