What’s in the news?

• The Reserve Bank has taken steps towards normalisation of liquidity management to pre-pandemic levels, with the introduction of the standing deposit facility (SDF) as the basic tool to absorb excess liquidity, and narrowing the liquidity adjustment facility (LAF) to 0.50% from the 0.90%.
• Governor Shaktikanta Das said the SDF would be at 3.75%, ie, 0.25% below the repo rate and 0.5% lower than the marginal standing facility (MSF) which helps the banks with funds when required.
• The SDF has its origins in a 2018 amendment to the RBI Act and is an additional tool for absorbing liquidity without any collateral.
• By removing the binding collateral constraint on the RBI, the SDF strengthens the operating framework of monetary policy. It is also a financial stability tool.

Reference:

1. https://www.thehindu.com/business/Economy/rbi-moves-to-normalise-liquidity-introduces-sdf-as-the-floor-to-absorb-excess-funds/article65303413.ece