What changed
The Marginal Standing Facility (MSF) rate was increased by 25 basis points from 8.75% to 9.00% with immediate effect. This change was announced in the Third Quarter Review of the Monetary Policy 2013-14. All other terms and conditions of the MSF scheme remain unchanged.
What it means for you
Banks will now pay a higher rate (9.00%) when borrowing overnight funds from RBI under the MSF window, making this source of liquidity more expensive. This could tighten short-term liquidity management for banks and may lead to a slight upward pressure on lending rates. The move signals RBI's intent to manage inflation and anchor rate expectations.
What you must do
- Update your internal MSF borrowing cost calculations to reflect the new 9.00% rate.
- Review your liquidity contingency plans to account for the higher cost of MSF funds.
- Communicate the rate change to your treasury and ALM teams for immediate impact assessment.
- Monitor overnight interbank rates for any spillover effects from the MSF hike.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Treasury departments of banks, Asset-Liability Management (ALM) teams, Banks relying on MSF for short-term liquidity
What is the new MSF rate and when does it take effect?
The MSF rate has been increased by 25 basis points to 9.00% with immediate effect from January 28, 2014.
Are there any other changes to the MSF scheme?
No, all other terms and conditions of the current MSF scheme remain unchanged as per the notification.
Why did RBI hike the MSF rate?
The hike was announced as part of the Third Quarter Review of the Monetary Policy 2013-14, likely to manage inflationary pressures and align short-term rates with policy stance.