Consider the following about Marginal Standing Facility MSF Rate It is rate at which scheduled banks...........

Economic Affairs Money Supply and Monetary Policy

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Consider the following about Marginal Standing Facility (MSF) Rate.

It is rate at which scheduled banks can borrow funds for their long-term needs.
Funds are borrowed at a rate higher than that prevailing under Liquidity Adjustment Facility (LAF).

Which of the above is/are correct?

1 only

2 only

Both 1 and 2

None

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Explanation:

Statement 1: Marginal standing facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely.

Funds are borrowed overnight from RBI against government securities. It is very short-term borrowing scheme for scheduled banks.

Statement 2: Banks borrow from the central bank by pledging government securities at a rate higher than the repo rate under liquidity adjustment facility or LAF in short.

The MSF rate is pegged 100 basis points or a percentage point above the repo rate.

Under MSF, banks can borrow funds up to one percentage of their net demand and time liabilities (NDTL).