---
title: "Policy Rate Corridor: RBI Liquidity Framework"
description: "A policy rate corridor defines the range for overnight interbank rates, crucial for understanding monetary policy in UPSC exams and economic research."
url: "https://modeldiplomat.com/learn/glossary/policy-rate-corridor"
---

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Model Diplomat Research Team · Last reviewed June 22, 2026

TL;DR

- A policy rate corridor is a monetary framework bounding the overnight interbank rate between a central bank's ceiling lending rate and its floor deposit rate.
- What are the three components of the RBI's policy rate corridor?
- How does the SDF differ from the reverse repo rate it replaced?
- What is the difference between the policy rate corridor and the Liquidity Adjustment Facility?
- Why did the RBI widen the corridor asymmetrically in 2020?

[Civil Service & Diplomatic Exams](https://modeldiplomat.com/learn/civil-services/glossary)Updated June 22, 2026

A policy rate corridor is a monetary framework bounding the overnight interbank rate between a central bank's ceiling lending rate and its floor deposit rate.

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Example

In February 2023 the RBI's Monetary Policy Committee raised the repo rate to 6.50 percent, setting the SDF floor at 6.25 percent and the MSF ceiling at 6.75 percent, a symmetric 50-basis-point corridor.

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