Standing Deposit Facility (SDF)
A relatively new monetary tool that strengthens liquidity absorption capability.
Introduction
Standing Deposit Facility is a relatively new monetary tool introduced by RBI.
Meaning of SDF
It allows RBI to absorb liquidity without providing collateral.
Purpose
SDF strengthens RBI’s ability to manage surplus liquidity.
Advantage over Reverse Repo
Unlike reverse repo, SDF does not require RBI to hold securities.
Impact on Interest Rates
SDF acts as the floor of the interest rate corridor.
Conclusion
SDF enhances RBI’s liquidity absorption capability.