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Access to SDF and MSF will be at the discretion of banks

To fully restore the liquidity management framework that was put in place in February 2020, albeit with some modifications to make it more effective, the RBI has now decided to introduce the Standing Deposit Facility (SDF) as the floor of the LAF (Liquidity Adjustment Facility) corridor. 

There will be standing facilities at both ends of the LAF corridor – one to absorb liquidity and the other to inject liquidity. Accordingly, unlike repo/reverse repo, OMO, and CRR, which are available at the discretion of the RBI, access to SDF and marginal standing facility (MSF) will be at the discretion of banks.

RBI governor Shaktikanta Das said on Friday that the SDF rate will be 25 bps below the policy rate, and it 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 MSF rate will continue to be 25 bps above the policy repo rate. 

The extraordinary liquidity measures undertaken during the pandemic, combined with the liquidity injected through various other operations of the RBI have left a liquidity overhang of the order of ₹8.5 trillion in the system.

Real GDP growth for 2022-23 is now projected at 7.2%, assuming crude oil (Indian basket) at $100 per barrel during 2022-23 and on the assumption of a normal monsoon in 2022, inflation is now projected at 5.7% in 2022-23.

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