RBI cuts marginal standing facility rate to ease liquidity

The Reserve Bank of India (RBI) has reduced the marginal standing facility (MSF) rate, at which banks borrow from it, to 9 per cent from 9.5 per cent to improve liquidity in the system.

MSF allows banks to borrow money from the central bank at a higher rate when there is a significant liquidity crunch.

"It has been decided to reduce the marginal standing facility (MSF) rate by a further 50 basis points from 9.5 per cent to 9 per cent with immediate effect," the central bank said.

The cut comes after a review of evolving liquidity conditions and in continuation of its calibrated unwinding of exceptional measures taken since July, RBI said.

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

RBI took steps in mid July, including raising the MSF rate by 2 per cent to 10.25 per cent, to tighten liquidity in an attempt to curb volatility in the rupee-dollar exchange rate.

The bank also said it conducted open market purchase operations of Rs 9,974 crore on Monday with the aim of injecting liquidity into the system.

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

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

Last month, 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 MSF.