RBI cuts MSF rate by 0.5% to improve liquidity

Mumbai: The Reserve Bank today reduced the marginal standing facility (MSF) rate, at which banks borrow from it, to 9 percent from 9.5 percent to improve liquidity in the system.

“It has been decided to reduce the marginal standing facility (MSF) rate by a further 50 basis points from 9.5 percent to 9 percent with immediate effect,” the RBI said.

The cut comes after a review of evolving liquidity conditions and in continuation of its calibrated unwinding of exceptional measures taken since July, the central bank said.[caption id=“attachment_1158195” align=“alignleft” width=“380”]  Reserve Bank of India. Reuters[/caption]

This is the second reduction in the rate since the 20 September mid-quarter monetary policy review, when it was lowered to 9.5 percent from 10.25 percent.

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The RBI took steps in mid July, including raising the MSF rate by 2 percent to 10.25 per cent, to tighten liquidity in an attempt to curb volatility in the rupee-dollar exchange rate. MSF allows banks to borrow money from the central bank at a higher rate when there is a significant liquidity crunch.

The RBI said it conducted open market purchase operations of Rs 9,974 crore today with the aim of injecting liquidity into the system.

The central bank also said it will provide additional liquidity through term repos of 7-day and 14-day tenor for a notified amount equivalent to 0.25 percent of net demand and time liabilities (NDTL) of the banking system through variable rate auctions every Friday, starting 11 October.

The notified amount and tenor of the term repo auctions will be announced prior to the auction dates.

Last month, the RBI said it injects about Rs 1.5 lakh crore into the system daily through the liquidity adjustment facility, the export credit refinance facility and the marginal standing facility.

With the reduction in the MSF rate, the RBI also announced that the bank rate will be adjusted to 9 percent with immediate effect.

“The bank rate also stands adjusted to 9 percent with immediate effect,” the central bank said in a statement.

Bank rate is the rate at which the RBI lends money to banks.

The RBI, in another statement, said the central government has announced the sale of four dated securities for Rs 15,000 crore on 11 October. The auctions by the RBI will be conducted using uniform price method.

The result of the auctions will be announced on the same day and payment by successful bidders will be on 14 October.

The government has plans to borrow Rs 2.35 lakh crore from the market through dated securities in the second half of the current fiscal.

PTI