The interest rate at which the Reserve Bank of India provides overnight liquidity to banks is called ______.

The correct answer is Marginal standing facility rate.

Key Points

• Marginal standing facility rate
•  The penal rate at which banks can borrow, on an overnight basis, from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a predefined limit (2 per cent).
• This provides a safety valve against unanticipated liquidity shocks to the banking system. The MSF rate is placed at 25 basis points above the policy repo rate.

Additional Information

• Reverse repo rate
  • ​The rate at which a nation's central bank borrows money from its own domestic commercial banks is known as the Reverse Repo Rate. It is a tool for the RBI's monetary policy that can be used to manage a nation's money supply. Assuming all other factors stay constant, the money supply decreases when the reverse repo rate increases and vice versa.
  • The amount of money accessible in the market will decrease if the Reverse Repo rate rises because commercial banks will be more enticed to deposit their funds with the RBI.
• Repo rate
  • The interest rate at which the Reserve Bank provides liquidity under the liquidity adjustment facility (LAF) to all LAF participants against the collateral of government and other approved securities.
• Leverage rate
  • ​A leverage ratio is any of a number of financial metrics that examine the amount of capital that comes from debt (loans) or evaluates a company's capacity to satisfy its financial obligations. Companies employ a combination of stock and debt to finance their operations, therefore the leverage ratio category is crucial.
  • By understanding how much debt a firm has, you can assess its ability to pay off its loans when they become due.