Standing facilities provide commercial banks with overnight options to borrow or deposit funds directly with the central bank, functioning as safety valves to reduce money market volatility. [1]
The Operational Interest Rate Corridor
[Marginal Lending Rate (Ceiling)] -> Highest rate; provides emergency credit against collateral
|- [Target Policy Rate Setting] -> Main policy rate; steers interbank market pricing
|- [Deposit Facility Rate (Floor)] -> Lowest rate; interest paid on excess reserves parked overnight
The interest rates on these two standing facilities establish the upper and lower boundaries of the central bank’s operational interest rate corridor. This framework keeps short-term interbank interest rates positioned near the target policy rate during changing market cycles. [1, 2]
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