RBI decides to allow reversal of liquidity facilities under both SDF, MSF during weekends and holidays, says Das | Mint
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Business News/ Economy / RBI decides to allow reversal of liquidity facilities under both SDF, MSF during weekends and holidays, says Das
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RBI decides to allow reversal of liquidity facilities under both SDF, MSF during weekends and holidays, says Das

RBI MPC outcome: RBI decided to allow reversal of liquidity facilities under both SDF and MSF even during weekends and holidays wef December 30, 2023. This is an important announcement so far as the banks and the liquidity situation is concerned, said Shaktikant Das, Governor of RBI.

RBI has decided to allow reversal of liquidity facilities under both SDF and MSF even during weekends and holidays (Mint)Premium
RBI has decided to allow reversal of liquidity facilities under both SDF and MSF even during weekends and holidays (Mint)

 

Reserve Bank of India's MPC meeting outcome - While RBI kept repo rates unchanged at 6.5 percent on Friday, it also maintained the policy stance as 'withdrawal of accommodation' by 5 out of 6 majority. The announcements are in line with expectations.

However as inflation remains above RBI's target of 4 per cent and the global economic environment remains fragile even though India's growth has been remarkable. The RBI is keeping close watch and is ready to act, trying to balance growth as well as keeping a tab on the inflation.

Also Read- RBI MPC meeting outcome: Experts predict acceleration on RBI's growth projection

RBI is deploying and using different tools for sucking out liquidity from the system, in case inflation shoots up or remines elevated. The Reserve Bank of India (RBI) is using the additional tool as Standing Deposit Facility (SDF) for absorbing liquidity to control Inflations. The use of this tool (SDF)  enables the RBI to take deposits from commercial banks without having to compensate them with government securities.

"RBI has decided to allow reversal of liquidity facilities under both SDF and MSF even during weekends and holidays with effect from December 30, 2023. This is an important announcement so far as the banks and the liquidity situation is concerned," said Shaktikant Das, Governor, Reserve Bank of India. 

The RBI thereby remains proactive and alert not only for sucking out the additional liquidity for controlling inflation through SDF however is also concerned about liquidity in the banks. While SDF is a collateral-free liquidity absorption mechanism implemented by the RBI with the intention of transferring liquidity out of the commercial banking sector but keeping an eye and maintaining a balance that liquidity  in the Banks does not dry out completely, it is effectively using tools as MSF (Marginal Standing Facility (MSF) . MSF is a provision made by the Reserve Bank of India through which scheduled commercial banks can obtain liquidity overnight, if inter-bank liquidity completely dries up.

Also Read- RBI MPC Meeting: FY24 inflation forecast remains unchanged at 5.4%

Both SDF and MSF are being allowed to adjusted even on weekends indicates that 

"RBI’s consistent concern on skewness of liquidity distribution in the banking system has now led them to allow reversal of liquidity facility under both SDF and MSF even on weekends" said Madhavi Arora, Lead Economist, Emkay Global Financial Services post RBI MPC Announcement.

 

 

 

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Published: 08 Dec 2023, 01:00 PM IST
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