Liquidity Adjustment Facility (LAF)
The framework through which RBI manages daily liquidity in the system.
Introduction
Liquidity Adjustment Facility (LAF) is a framework through which RBI manages daily liquidity.
Components of LAF
LAF operates through repo and reverse repo auctions.
Purpose
It helps RBI maintain overnight interest rates close to the policy rate.
Role in Monetary Policy
LAF improves monetary transmission and interest rate stability.
Importance for Banks
Banks use LAF to manage short-term mismatches in funds.
Conclusion
LAF is the backbone of RBI’s liquidity management system.