Proper Definition of Different Policy Rates of Reserve Bank of India..... Marginal Standing Facility (MSF) Rate: MSF is the rate at which banks can borrow overnight from RBI. This was introduced in the monetary policy of RBI for the year 2011-2012. The MSF is pegged 100bps or a % above the repo rate. Banks can borrow funds through MSF when there is a considerable shortfall of liquidity. This measure has been introduced by RBI to regulate short-term asset liability mismatches more effectively. Repo Rate: Whenever the banks have any shortage of funds they can borrow it from the central bank. Repo (Repurchase) rate is the rate at which the central bank lends short-term money to the banks against securities. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from the central bank becomes more expensive. It is more applicable when there is a liquidity crunch in the market. Reverse Repo Rate: The reverse repo rate is the rate at which the banks park surplus funds with reserve bank, while the repo rate is the rate at which the banks borrow from the central bank. It is mostly done when there is surplus liquidity in the market. Bank rate The interest rate that is charged by a country’s central or federal bank on loans and advances to control money supply in the economy and the banking sector. This is typically done on a quarterly basis to control inflation and stabilize the country’s exchange rates. A fluctuation in bank rates triggers a ripple-effect as it impacts every sphere of a country’s economy. For instance, the prices in stock markets tend to react to interest rate changes. A change in bank rates affects customers as it influences prime interest rates for personal loans. suraj singh
Posted on: Sun, 03 Nov 2013 05:33:50 +0000
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