Difference Between Repo Rate and MSF Rate

Repo rate is applied to loans given to banks who are applying to meet their short-term financial needs. While, MSF is meant for lending overnight to banks. Repo rate is the rate at which money is lent by RBI to commercial banks, while MSF is a rate at which RBI lends money to scheduled banks.

1. Why MSF is higher than repo rate?
2. What is the difference between repo rate and interest rate?
3. What is difference between repo rate and Mclr?
4. Why is Bank rate equal to MSF?
5. What is LAF rate?
6. What is current MSF rate?
7. Who pays the repo rate?
8. Who determines repo rate?
9. What is repo rate in simple words?

Why MSF is higher than repo rate?

Effect of MSF Rate:

The MSF is maintained at 25 bps higher than the repo rate. MSF basically provides a greater liquidity cushion. Higher the MSF rate, more expensive is borrowing for banks, as well as corporate borrowers and individuals. It is used by RBI to control the money supply in the country's financial system.

What is the difference between repo rate and interest rate?

Simply put, repo rate is the rate at which the RBI lends to commercial banks by purchasing securities while bank rate is the lending rate at which commercial banks can borrow from the RBI without providing any security.

What is difference between repo rate and Mclr?

In other words, any change in the repo rate will reflect in a change in the RLLR of commercial banks every 3 months. The MCLR-linked loan rates, on the other hand, are revised once every 6 or 12 months. Hence, the volatility of the loan rates linked to RLLR is more compared to the volatility under the MCLR regime.

Why is Bank rate equal to MSF?

MSF stands for Marginal Standing Facility. It is a facility availed by the banks only when the excess SLR of their Net Demand and Time Liabilities (NDTL) has been exhausted. In this facility, banks are required to pay interest, at a rate that is 100 bps greater than the repo rate, which is known as MSF Rate.

What is LAF rate?

As announced in the Monetary Policy Statement, 2020-21, today, it has been decided by the Monetary Policy Committee (MPC) to reduce the policy Repo rate under the Liquidity Adjustment Facility (LAF) by 40 basis points from 4.40 per cent to 4.00 per cent with immediate effect.

What is current MSF rate?

MSF & Bank Rate remains unchanged at 4.25%. Projection for CPI Inflation has been revised to 5.1%. TLTRO scheme is being extended by 6 months, up to September 30, 2021 this will help in maintaining liquidity.

Who pays the repo rate?

“The repo rate is the interest rate commercial banks pay to borrow money from the Reserve Bank,” said Clarke. “At the moment it's sitting at 6.75%.” By raising or lowering the repo rate, the Reserve Bank effectively makes it more or less expensive for commercial banks to borrow money.

Who determines repo rate?

As stated above, Repo Rate is set by the RBI for lending short term money to banks. Reverse Repo Rate is actually the opposite of Repo Rate. The RBI borrows money at this rate from the banks for the short term. In other words, the banks park their excess funds with the central bank at this rate, often, for one day.

What is repo rate in simple words?

Repo rate refers to the rate at which commercial banks borrow money by selling their securities to the Central bank of our country i.e Reserve Bank of India (RBI) to maintain liquidity, in case of shortage of funds or due to some statutory measures. It is one of the main tools of RBI to keep inflation under control.