CA Foundation · Business Economics · Money Market
Banks in India borrow from the Reserve Bank under the Marginal Standing Facility (MSF) against approved securities. The MSF rate is set at:
The MSF rate is set above the repo rate. MSF is an emergency overnight borrowing window for banks short of liquidity, so the Reserve Bank charges a penal rate higher than the repo rate to discourage routine use and keep banks relying on normal repo borrowing.
- ABelow the repo rate
- BEqual to the reverse repo rate
- CAbove the repo rateCorrect
- DEqual to the Bank Rate minus 1 percent always
Explanation
MSF is an emergency overnight window for banks facing acute liquidity shortage. It is priced at a penal level above the policy repo rate, which discourages routine use. It is therefore not below or equal to the repo or reverse repo rate.
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