NEWS

Reserve Bank of India (RBI) introduced the Standing Deposit Facility (SDF) as an additional tool for absorbing liquidity

DETAILS

WHAT –

• Monetary policy tool
• Absorbs liquidity without any collateral
• There is binding collateral constraint
• Replace the fixed rate reverse repo (FRRR) as the floor of the liquidity adjustment facility corridor
• Available on all days of the week, throughout the year, like MSF (marginal standing facility)

HOW IS IT INTRODUCED – Through amended Section 17 of the RBI Act (Amended in 2018)

MAIN AIM – Reduce the excess liquidity of Rs 8.5 lakh crore in the system, and control inflation

HOW IT WILL OPERATE

• SDF rate will be 25 bps below the policy rate (Repo rate)
• Will be applicable to overnight deposits at this stage
• It would, however, retain the flexibility to absorb liquidity of longer tenors as and when the need arises, with appropriate pricing
• The RBI’s plan is to restore the size of the liquidity surplus in the system to a level consistent with the prevailing stance of monetary policy.

REVERSE REPO RATE – The fixed rate reverse repo (FRRR) rate which is retained at 3.35 per cent will remain part of the RBI’s toolkit, and its operation will be at the discretion of the RBI for purposes specified from time to time