Welcoming the RBI's move to cut the marginal standing facility (MSF) rate, industry body Assocham on Tuesday said the step will curb volatility in the interest rates and lower cost of borrowing for banks.
"I firmly believe that the cut in MSF rate will help reduce volatility in the interest rate market and lower the weighted cost of borrowing for banks," Assocham President Rana Kapoor said.
The RBI on Monday cut the marginal standing facility (MSF) rate, at which it lends emergency funds to banks, by 0.5 per cent to 9 per cent with an aim to improve liquidity and boost economic activities.
MSF allows banks to borrow money from the central bank at a higher rate when there is a significant liquidity crunch. The central bank also said it will provide additional liquidity through term repos of 7-day and 14-day tenor for a notified amount equivalent to 0.25 per cent of net demand and time liabilities (NDTL) of the banking system through variable rate auctions every Friday, starting October 11.
"The decision to provide additional liquidity through term repos of 7-day and 14-day tenor will deepen the money market through development of term repo borrowing," Kapoor said.
"With external sector developments showing a marked improvement and evidence on the utility of interest rate defence remaining hazy, the current set of easing measures will help RBI to focus on growth risks," Kapoor added.
The notified amount and tenor of the term repo auctions will be announced prior to the auction dates.
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