The full form of SDF is Standing Deposit Facility.
The Standing Deposit Facility (SDF) is a monetary policy tool introduced by the Reserve Bank of India (RBI). It allows the RBI to absorb excess liquidity from the banking system without requiring the provision of collateral in return from the RBI. This differentiates it from the reverse repo rate, which does require collateral.
Here's a breakdown of the SDF:
- Purpose: To manage liquidity in the banking system. It provides the RBI with a mechanism to absorb surplus funds held by banks.
- Mechanism: Banks can park their excess funds with the RBI under the SDF.
- Collateral: No collateral is required from the RBI. This is a key difference between the SDF and the reverse repo rate.
- Interest Rate: The SDF rate is typically lower than the repo rate. It acts as the floor of the liquidity adjustment facility (LAF) corridor.
- Impact: By absorbing excess liquidity, the SDF helps to control inflation and maintain monetary stability.
In summary, the Standing Deposit Facility is a vital tool for the RBI to manage liquidity and maintain monetary stability in the Indian economy.
