Definition
Marginal Standing Facility (MSF)
The Marginal Standing Facility is the RBI window where banks can borrow overnight funds against government securities at a rate above the repo rate.
MSF is the RBI's penal, last-resort overnight lending window. Banks tap it when they face an acute liquidity shortfall and have exhausted other options, borrowing against their SLR holdings at the MSF rate, which sits above the repo rate.
The MSF rate forms the upper bound of the RBI's interest-rate corridor, with the standing deposit facility rate at the lower bound and the repo in between. A spike in MSF borrowing signals tight system liquidity and stress in the interbank money market.
Related terms
- Repo (Repurchase Agreement)A repo is a short-term loan where one party sells securities and agrees to buy them back later at a slightly higher price, the difference acting as interest.
- Liquidity Adjustment Facility (LAF)The LAF is the RBI's framework for managing day-to-day banking-system liquidity through tools such as the repo, the Standing Deposit Facility and the Marginal Standing Facility.
- Standing Deposit Facility (SDF)The Standing Deposit Facility is the RBI tool that lets banks park surplus funds with it overnight without collateral, at a rate below the repo rate.
- Repo RateThe repo rate is the interest rate at which the RBI lends short-term money to commercial banks, and it is the central bank's main tool to balance inflation and growth.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.