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CSEET · Economic and Business Environment · Indian Financial Markets

Under the RBI's current liquidity management framework, the Standing Deposit Facility (SDF) rate is set relative to the policy repo rate. Which relationship is correct?

The SDF rate is 25 basis points below the policy repo rate and forms the floor of the LAF corridor. Banks can park surplus liquidity with the RBI at this rate without collateral. The ceiling is the MSF rate, which is 25 basis points above repo.

  1. ASDF rate is 25 basis points below the repo rate, forming the floor of the liquidity adjustment facility corridorCorrect
  2. BSDF rate is 25 basis points above the repo rate, forming the ceiling of the corridor
  3. CSDF rate is always equal to the repo rate
  4. DSDF rate is 100 basis points above the Bank Rate

Explanation

Since April 2022, the SDF rate is set 25 bps below the policy repo rate and acts as the floor of the LAF corridor. The Marginal Standing Facility rate and Bank Rate are 25 bps above the repo rate and form the ceiling. Choosing 'above' confuses the SDF with the MSF.

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