Consider the following statements regarding instruments of monetary po

Consider the following statements regarding instruments of monetary policy:

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1. Standing deposit facility (SDF) rate was introduced in April 2022.
2. SDF rate replaced fixed reverse repo rate as the floor of the LAF corridor.

Which of the statements given above is/are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC CDS-1 – 2024

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Statement 1 is correct: The Standing Deposit Facility (SDF) was introduced by the Reserve Bank of India in April 2022 as an additional tool for absorbing liquidity without providing collateral.
Statement 2 is correct: The SDF rate was set below the repo rate and replaced the fixed reverse repo rate as the effective floor of the Liquidity Adjustment Facility (LAF) corridor. The LAF corridor is now defined by the Marginal Standing Facility (MSF) rate (ceiling) and the SDF rate (floor).

SDF was introduced in April 2022 and functions as the floor of the LAF corridor, replacing the fixed reverse repo rate.

The SDF aims to provide the RBI with a more flexible tool to manage liquidity compared to the reverse repo window which requires collateral. It also helps in better anchoring the overnight money market rates within the LAF corridor.

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