RBI has kept all
benchmark rates unchanged. But it has introduced SDF ( Standing Deposit
Facility) at 3.75% which is 25bps below Repo Rate of 4%.
This instrument will be
used to absorb liquidity.
What is SDF?
Standing Deposit
Facility (SDF) allows the RBI to absorb liquidity (deposit) from commercial
banks without giving government securities in return to the banks.
When the central bank
has to absorb tremendous amount of money from the banking system through the
reverse repo window, it becomes difficult for it to provide such volume of
government securities in return.
This happened during the
time of demonetization.
In this sense, the
Standing Deposit Facility (SDF) is a collateral free arrangement meaning that
RBI need not give collateral for liquidity absorption.
The SDF will allow the
RBI to suck out liquidity without offering government securities as collateral.
Author: Tejas Vaidya
Note: Originally this post was posted in our wordpress website on 11th April 2022. https://fintorch.wordpress.com/2022/04/11/what-is-sdf/
ReplyDeleteWe are reposting it here since we have decided to switch to blogger due to more usability.
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