Revised Bank Rate & Marginal Standing Facility (MSF) from 15th July 2013

In a move to stem the continuing fall of rupee, the Reserve Bank of India (RBI) has raised the Bank Rate & Marginal Standing Facility (MSF). It will help to restore stability to the foreign exchange market. The RBI has raised Bank Rate to 10.25% from 8.25%. In result the Marginal Standing Facility (MSF) rate also raised to 10.25%. Remaining rates will be unchanged. Last week the Indian rupee touched an all-time low of 61.21 vis-a-vis USD. The RBI had not stepped in to curb rupee fall initially, but after a meeting with the government decided to raise the marginal standing facility or MSF along with Bank Rates.

Bank Rate: Bank Rate is the rate of interest at which RBI lends funds to banks for their long term needs. Where the Repo rate is the rate at which the RBI lends money to the banks against securities for short-term needs.

Marginal Standing Facility (MSF) Rate: Under this scheme, Banks will be able to borrow upto 1% of their respective Net Demand and Time Liabilities". The rate of interest on the amount accessed from this facility will be 300 basis points (i.e. 3%) above the repo rate wef 15/07/2013 [Earlier this facility was available at 100 basis point above repo rate]. This scheme has been introduced to reduce volatility in the overnight rates and improve monetary transmission.

RBI in its Monetary Policy announced on 03rd May, 2011 that it will soon be introducing Marginal Standing Facility (MSF). Later on RBI announced that MSF scheme has become effective from 09th May, 2011.