Discussion
Under which rate does a bank borrow overnight money from the RBI beyond its repo limit?
Answer: A
Correct answer: MSF
The Marginal Standing Facility lets a bank borrow overnight from the RBI beyond what the repo window allows, dipping into its statutory liquidity holdings, at a rate above the repo rate. It is the safety valve of the system: the MSF rate forms the ceiling of the interest rate corridor, with the reverse repo rate as its floor.
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