Consider the following statements regarding the Standing Deposit Facility (SDF) and Reverse Repo Facility (RRF):
1. The SDF absorbs liquidity from commercial banks without collateral.
2. The Reverse Repo Facility requires the RBI to provide government securities as collateral.
3. The SDF is a long-term liquidity absorption tool, unlike the Reverse Repo Facility.

How many of the above statements are correct?
(a) Only one
(b) Only two
(c) All three
(d) None

Question

Consider the following statements regarding the Standing Deposit Facility (SDF) and Reverse Repo Facility (RRF):
1. The SDF absorbs liquidity from commercial banks without collateral.
2. The Reverse Repo Facility requires the RBI to provide government securities as collateral.
3. The SDF is a long-term liquidity absorption tool, unlike the Reverse Repo Facility.

How many of the above statements are correct?
(a) Only one
(b) Only two
(c) All three
(d) None

ONLiNE UPSC · Accepted Answer

Statement 1 is correct : The Standing Deposit Facility (SDF) allows the RBI to absorb liquidity from commercial banks without requiring any collateral, unlike other tools such as the Reverse Repo, which requires collateral. The SDF is a mechanism introduced to absorb excess liquidity, and it operates without collateral backing.

Statement 2 is correct : The Reverse Repo Facility (RRF) involves the RBI absorbing liquidity by borrowing funds from commercial banks, and it requires the RBI to provide government securities as collateral in return. This is a key feature of reverse repos.

Statement 3 is not correct : The SDF is actually a short-term liquidity absorption tool. It&rsquo;s a tool that helps manage short-term liquidity fluctuations, whereas the Reverse Repo Facility can be used for both short-term and longer-term liquidity absorption, depending on the tenure of the reverse repo operation.

Monetary Policy

Standing Deposit Facility (SDF) and Reverse Repo Facility (RRF)

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M Question 1	⏱ 0
Consider the following statements regarding the Standing Deposit Facility (SDF) and Reverse Repo Facility (RRF): 1. The SDF absorbs liquidity from commercial banks without collateral. 2. The Reverse Repo Facility requires the RBI to provide government securities as collateral. 3. The SDF is a long-term liquidity absorption tool, unlike the Reverse Repo Facility. How many of the above statements are correct? (a) Only one (b) Only two (c) All three (d) None

Monetary Policy

Standing Deposit Facility (SDF) and Reverse Repo Facility (RRF)

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