RBI calibrates MSF to ease rupee volatility
In the wake of continuing depreciation of rupee disturbing the monetary and fiscal calculations, the Reserve Bank of India (RBI), fine-tuned the Marginal Standing Facility (MSF) rate to 10.5% from previous 8.25%. This will be 300 basis points above the policy repo rate under the Liquidity Adjustment Facility (LAF). The increase comes into effect with immediate effect. As a consequence of the increase in the MSF rate, the Bank Rate also stands adjusted to 10.25%.
As per RBI, the overall allocation of funds under the LAF would be limited to 1% of the net demand and time liabilities of the banking system. This is estimated to be around Rs.75,000 crore.
What is MSF?
Marginal Standing Facility (MSF) allows banks to borrow funds from the RBI at a rate which is 100 basis points above the LAF (or the repo rate), against pledging the approved government securities.
How will RBI’s caliberation of MST to ease Rupee volatility impact the market?
The increase in MSF is expected to make the loans costlier.