When commercial banks cannot cover their funding needs through the open market, they can access liquidity directly through the central bank’s Standing Facilities.
The Two Arms of Standing Facilities
[Central Bank Liquidity Corridor]
  |- Liquidity Injection Gate -> Marginal Lending Facility / Discount Window (Punitive high borrowing rate)
  |- Liquidity Absorption Gate -> Deposit Facility / Over-Night Reserve Window (Low interest floor rate)

  • The Marginal Lending Facility (Discount Window): Provides overnight credit to commercial banks against eligible collateral. The interest rate on this facility is set higher than the open market rate, functioning as a ceiling for short-term interbank interest rates. [1]
  • The Deposit Facility: Allows banks to park excess liquidity overnight with the central bank. The interest rate on this facility sets a floor for short-term money market rates.

 
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