Consider the following statements in regard to ‘Marginal Standing Facility (MSF)’ of RBI : It will help in reducing volatility in the overnight lending rates in the inter-bank market. The borrowing under the MSF should be over and above the statutory liquidity requirement. Which of the statements given above is/are correct ? Options: A . &nbsp2 only B . &nbspBoth 1 and 2 C . &nbsp1 only D . &nbspNeither 1 nor 2

Consider the following statements in regard to ‘Marginal Standing Facility

Question

Consider the following statements in regard to ‘Marginal Standing Facility (MSF)’ of RBI :

It will help in reducing volatility in the overnight lending rates in the inter-bank market.

The borrowing under the MSF should be over and above the statutory liquidity requirement.

Which of the statements given above is/are correct?

Options:

A . 2 only

B . Both 1 and 2

C . 1 only

D . Neither 1 nor 2

Answer: Option C
Answer: (c)
Marginal Standing Facility (MSF) is the rate at which scheduled banks could borrow funds overnight from the Reserve Bank of India (RBI) against approved government securities.
Banks can borrow funds through MSF during acute cash shortages (considerable shortfall of liquidity). This measure has been introduced by RBI to regulate short-term asset-liability mismatch more effectively and the borrowing is within Statutory liquidity requirements.
The Marginal Standing Facility (MSF) is pegged 100bps or 1 % above the Repo Rate.

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