Marginal Standing Facility (MSF)
Why it Matters?
The RBI’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 5.5%, maintaining its focus on inflation and growth stability. It retained the GDP growth forecast at 6.5% for FY26 and projected inflation at 3.1%.
What You Should Know?
Marginal Standing Facility (MSF) is a window for scheduled commercial banks to borrow overnight funds from the RBI against government securities.
Introduced by the RBI in 2011-12, MSF aims to provide liquidity support in emergencies when interbank liquidity dries up.
MSF rate is usually 25 basis points (0.25%) higher than the repo rate, making it a penal rate.
Banks can borrow up to 2% of their Net Demand and Time Liabilities (NDTL) under MSF.
MSF helps the RBI control short-term interest rates and maintain monetary stability.
MSF borrowing is meant for emergency needs and not for routine liquidity management.
It is a part of the Liquidity Adjustment Facility (LAF) framework of the RBI.
MSF rate is linked to the repo rate, remaining the upper bound of the liquidity adjustment facility (LAF) corridor.
Monetary Policy Committee (MPC)
It is Statutory body, constituted under the RBI Act, 1934 (Amended in 2016).
It sets the policy repo rate to achieve the inflation target and support economic growth and publishes Monetary Policy Statement bi-monthly.
It was established in 2016, based on recommendations of the Urjit Patel Committee.
Its composition includes 6 members:
3 from RBI (including the Governor as Chairperson)
3 external members appointed by the Central Government.