CA Foundation · Business Economics · Money Market
Under the monetary policy framework in India, the policy repo rate is 6.50%. The Standing Deposit Facility (SDF) rate is set 25 basis points below the repo rate and the MSF rate 25 basis points above it. What is the width of the LAF corridor between the SDF rate and the MSF rate?
The corridor is 0.50 percentage points wide. The SDF rate is 6.25% (repo minus 0.25) and the MSF rate is 6.75% (repo plus 0.25), so the gap between them is 0.50 points, which is the sum of the two 25 basis point spreads.
- A0.25 percentage points
- B0.50 percentage pointsCorrect
- C0.75 percentage points
- D1.00 percentage point
Explanation
SDF rate = 6.50 - 0.25 = 6.25%. MSF rate = 6.50 + 0.25 = 6.75%. Corridor width = 6.75 - 6.25 = 0.50 percentage points. Choosing 0.25 only counts one side of the corridor.
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