Context:
The Reserve Bank of India (RBI) has raised the Standing Liquidity Facility (SLF) limit for Standalone Primary Dealers (SPDs) from ₹10,000 crore to ₹15,000 crore, effective April 2, 2025.
- SPDs can now access higher funding at the prevailing repo rate.
- RBI has also expanded SPD participation in repo operations, allowing them to take part in all tenors of repo transactions.
The Standing Liquidity Facility (SLF)
The Standing Liquidity Facility (SLF) is a collateralized liquidity facility provided by the Reserve Bank of India (RBI) to standalone primary dealers (SPDs), offering them access to funds at the prevailing repo rate to meet their liquidity needs.
- Purpose:The SLF aims to ensure that SPDs, who act as market-makers in the government securities market, have sufficient liquidity to perform their duties effectively.
- Mechanism:The RBI makes funds available to SPDs under the SLF, allowing them to borrow at the prevailing repo rate
Market Impact
- Improved Liquidity for SPDs: SPDs will have more funding sources, enhancing their role in the financial markets.
- Minimal Impact on G-Secs: Analysts expect limited influence on government securities (gilts) markets.
- Strengthened Role of SPDs: With increased access to liquidity and participation in repo operations, SPDs can play a more active role in market-making.
This move is part of RBI’s broader liquidity management strategy, ensuring efficient market operations while supporting SPDs in fulfilling their role as key intermediaries in the government securities market.
BS
