SDF and MSF Explained: The 5.25%–5.75% Corridor Around the 5.50% Repo Rate

If the repo rate is 5.50%, what are the two other rates in Wednesday’s RBI statement for? Paragraph 2 of the 7 October MPC resolution says the SDF rate “stands adjusted at 5.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 5.75 per cent.” SDF and MSF are the floor and the ceiling around the repo rate. Knowing what they do makes the next policy headline far easier to read.

The three rates on one line

Together, the floor and the ceiling are called the LAF (liquidity adjustment facility) corridor. It is 50 basis points wide, with the repo rate sitting in the middle.

How SDF and MSF frame the repo rate

Banks lend to each other overnight. With the corridor in place, a bank with surplus cash has no reason to accept less than 5.25% from another bank, because it can earn that from RBI under the SDF. A bank that needs money has no reason to pay more than 5.75%, because it can borrow from RBI under the MSF. That keeps the overnight rate within the corridor, and RBI’s daily operations nudge it towards the repo rate.

RBI’s release of 8 April 2022 set this up. It said the SDF “will replace the fixed rate reverse repo (FRRR) as the floor of the LAF corridor”, and that “the LAF corridor will be symmetric around the policy repo rate with the MSF rate as the ceiling and the SDF rate as the floor” (PR 2022-2023/39). The operational circular the same day set the SDF at “25 basis points (bps) below the policy repo rate” and opened it “between 17:30 hrs to 23:59 hrs on all days, including Sundays and holidays” (PR 2022-2023/41).

Why the SDF needs no collateral: the 2022 release explains that the amended Section 17 of the RBI Act let RBI absorb money “without any collateral”. The old reverse repo required RBI to hand over government bonds in return.

What one night costs a bank

The rupee gaps are small per night, but they add up. On ₹1,000 crore held overnight:

Across the 50 bps corridor, the bank that parks cash in the SDF earns ₹1,36,986 a night less than the bank that borrows the same amount through the MSF pays. That gap is what pushes banks to trade with each other inside the corridor before turning to RBI.

On Wednesday itself, RBI’s one-day variable rate reverse repo (VRRR) auction drew ₹2,55,827 crore against a notified ₹3,00,000 crore, with a cut-off of 5.49%, just under the new repo rate (RBI auction result, 7 Oct 2026). Banks offered 85.28% of the amount RBI was willing to absorb, a sign that the system had plenty of cash.

From 2022 to today

The whole corridor is 150 bps higher than at its 2022 starting point, and its width hasn’t changed. In practice, when the MPC moves the repo rate, SDF and MSF move with it by the same amount, as paragraph 2 showed on Wednesday.

Three common mix-ups

“Banks borrow from RBI at the repo rate every day.” Not exactly. Most of RBI’s day-to-day liquidity work is done through auctions, where the rate is set by bids. Wednesday’s one-day VRRR, for example, cleared at 5.49%, not 5.50%. The repo rate is the anchor those auction rates sit close to.

“The SDF rate is what my savings account should earn.” No. The SDF is an overnight facility for LAF participants such as banks. Your savings and FD rates are set by your bank, though over time they respond to the same changes in the cost of money.

“A wider corridor means a bigger hike.” The width has stayed at 50 bps since April 2022. A hike shifts the whole band up or down; it does not stretch it.

Where you feel it as a customer

You never deal with the SDF or MSF yourself. They reach you indirectly:

• Loans. Repo-linked home loans track the repo rate itself. Our explainer on what a 25 bps hike does to EMIs shows the effect.
• Short-term deposit rates. When overnight money gets dearer, banks’ cost of funds rises, and that tends to feed into FD rates with a lag. See our guide to FD rules for 2026.
• Agreements that name the Bank Rate. If a loan or other contract you hold ties a charge to the Bank Rate, that reference is now 5.75%.

One thing to do before the 2–4 December meeting: find the benchmark named in your loan sanction letter (repo-linked, MCLR or another external benchmark) and its reset date, so you know which of these rates actually reaches you.

What economists expected before Wednesday is in our RBI policy October 2026 preview. For the longer-run effect on home loans, read home-loan EMIs after an RBI hike.

Four quick questions come up every time these rates are in the news.

FAQ

Is the SDF the same as the reverse repo rate?

No. The SDF replaced the fixed-rate reverse repo as the corridor floor in April 2022. The FRRR was kept at 3.35% then, but it is no longer the floor.

Can I put money in the SDF?

No. Only entities eligible for RBI’s LAF, such as banks, can use it (PR 2022-2023/41).

Why are the MSF and the Bank Rate the same?

RBI announces them together and moves them together. Paragraph 2 of the 7 October resolution sets both at 5.75%.

Does the SDF rate change between MPC meetings?

Not on its own. RBI fixed it at 25 bps below the policy repo rate (PR 2022-2023/41), so it moves only when the repo rate does, as on 7 October.

How wide is the corridor?

50 bps: 25 below the repo rate and 25 above it.

Takeaway: when the next policy announcement comes, read the repo rate as the signal and the SDF and MSF as the band the overnight rate is meant to stay inside.