With reference to the Marginal Standing Facility (MSF) introduced by the Reserve Bank of India (RBI), consider the following statements:1. Under MSF, banks can borrow overnight funds from RBI by pledging securities over and above the SLR requirement. 2. The MSF rate is typically lower than the repo rate and serves as the lower bound of the interest rate corridor. 3. The main objective of MSF is to reduce volatility in overnight inter-bank interest rates and ensure smooth monetary transmission. Which of the statements given above is/are correct? |ForumIAS

[A] 1 and 2 only

[B] 2 and 3 only

[C] 1 and 3 only

[D] 1, 2 and 3

Answer: C

Notes:

Explanation:

Banks can borrow overnight funds under MSF by pledging government securities within the SLR limit, i.e., over and above what is required for repo. It acts as a last-resort borrowing window.
The MSF rate is higher than the repo rate (by 1% or more) and represents the upper bound of the RBI’s interest rate corridor — reverse repo is the lower bound.
The primary objective of MSF is to reduce volatility in the overnight inter-bank lending market and facilitate smooth monetary transmission.

Source- 11th NCERT: Economics: Indian Economic Development and TMH Indian Economy by Ramesh Singh

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