Consider the following statements regarding the Marginal Standing Facility (MSF):
1. MSF is the rate at which the banks are able to borrow overnight funds from the Reserve Bank of India (RBI) against the approved government securities.
2. It lies at interest rate 1 per cent (100 basis points) lower than the current repo rate.
Which of the statements given above is/are correct?
1 only
2 only
Both 1 and 2
Neither 1 nor 2
· The Marginal Standing Facility (MSF) is a new Liquidity Adjustment Facility (LAF) window created by the Reserve Bank of India (RBI) in its credit policy of May 2011. MSF is the rate at which the banks are able to borrow overnight funds from RBI against the approved government securities.
· Under this scheme, banks can borrow overnight upto 1 per cent of their net demand and time liabilities (NDTL) from the RBI, at interest rate 1 per cent (100 basis points) higher than the current repo rate.
· The MSF rate has been floated as a penal rate and since mid-2015 RBI has maintained it 1 per cent higher than the prevailing repo rate. By end March 2018, it was at 6.25 per cent, fully aligned with the bank rate (i.e., equal to the bank rate).
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