The benchmark repo rate stands unchanged at 4% for the 11th straight time
The monetary policy stance remains accommodative with a unanimous vote
The reverse repo rate is unchanged at 3.35%
India’s inflation forecast was revised upwards from the previous projection to 5.7% in FY23
India’s GDP growth projection revised downwards from the previous projection to 7.2% for FY23
The RBI today also introduced a standing deposit facility at 3.75%, aimed at liquidity management.
What is SDF?
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% which will help it absorb liquidity.
Generally, RBI uses reverse repo to absorb liquidity. In reverse repo, RBI takes liquidity from the banks and gives reverse repo rate of interest to the banks + keeps government securities (GSec, SDL, Tbills) as collateral. But, when a huge amount of liquidity needs to be absorbed, it’s difficult in many ways for the RBI to give so much collateral in return. SDF is the perfect tool then. You can take liquidity and don’t have to give the collateral as well .
Categories: Market Update
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