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

Correct option is B

The correct answer is (b) Marginal Standing Facility rate. The Marginal Standing Facility (MSF) is a monetary policy tool used by the Reserve Bank of India (RBI) to provide overnight liquidity to scheduled commercial banks. Under this facility, banks can borrow funds overnight from the RBI by pledging government securities. This mechanism allows banks to access liquidity beyond the limits of the Liquidity Adjustment Facility (LAF) in case of emergencies or shortages of funds.

Information Booster:

• Repo Rate: The rate at which the RBI lends short-term funds to commercial banks against government securities. It is used to manage inflation and liquidity in the economy.
• Reverse Repo Rate: The rate at which the RBI borrows money from banks. It helps absorb excess liquidity from the banking system.
• Leverage Rate: Not directly related to the RBI’s liquidity management. It measures the level of a company’s debt compared to its equity or assets.