What do you mean by MSF rate?

MSF rate or Marginal Standing Facility rate is the interest rate at which the Reserve Bank of India provides money to the scheduled commercial banks who are facing acute shortage of liquidity. This rate differs from the Repo rate and the banks can get overnight funds from RBI by paying the exclusive MSF rate.

What is meant by bank rate?

Definition: Bank rate is the rate charged by the central bank for lending funds to commercial banks. Description: Bank rates influence lending rates of commercial banks. Higher bank rate will translate to higher lending rates by the banks.

Why is MSF and Bank Rate same?

The rate at which banks borrow money from the RBI without any sale of securities is called the Bank rate. MSF rate is the rate at which the these banks can borrow funds overnight from RBI against government securities. Banks can use this facility only in case of severe cash shortage or acute shortage of liquidity.

How bank rate is determined?

Bank Rates in India is determined by the RBI. It is usually higher than a Repo Rate on account of its ability to regulate liquidity. There are many important economic terms/topics which are relevant for UPSC 2021: Repo Rate and Reverse Repo Rate.

Is bank rate decided by RBI?

As RBI controls the money supply in the economy as well as in the banking sector, deciding the bank rate is usually done quarterly to control inflation and India’s exchange rates as part of Monetary Policy action. As of January 2021, the Bank Rate decided by the RBI is at 4.65 per cent.

Is bank rate for long term?

Comparatively, Bank Rate caters to long term financial requirements of commercial banks whereas Repo Rate focuses on short term financial needs.

Is MSF collateral free?

Loans given at MSF rates involve providing government securities as collateral. 4. MSF banks are allowed to use the securities that come under Statutory Liquidity Ratio in the process of availing loans from RBI. And therefore, MSF is 1\% more than repo rate.

Why is Bank rate equal to MSF?