The Reserve Bank of India in its monetary policy for 2011-12, introduced the MSF, under which banks could borrow funds from RBI at a rate higher than the liquidity adjustment facility repo rate against pledging government securities.
- Co-operative banks cannot avail the facilities under MSF.
- The MSF rate is pegged 100 basis points or a percentage point above the repo rate. Banks can borrow funds through MSF when there is a considerable shortfall of liquidity.
- This measure has been introduced by RBI to regulate short-term asset-liability mismatches more effectively.
- Reducing the rate of MSF strengthens liquidity enhancement measures aimed at increasing bank access to lower-cost funds.
- Recently, on the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) decided to:
o Reduce the policy repo rate under the liquidity adjustment facility (LAF) by 35 basis points (bps) from 5.75 percent to 5.40 percent with immediate effect.
o Consequently, the reverse repo rate under the LAF stands revised to 5.15 percent, and the marginal standing facility (MSF) rate and the Bank Rate to 5.65 percent.
o The MPC also decided to maintain the accommodative stance of monetary policy.