ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Repo Rate
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Reverse Repo Rate
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Marginal Standing Facility (MSF)
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Open Market Operations (OMO)
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Detailed explanation-1: -LAF has two components-repo (repurchase agreement) and reverse repo. When banks need liquidity to meet its daily requirement, they borrow from RBI through repo. The rate at which they borrow fund is called the repo rate.
Detailed explanation-2: -Liquidity Adjustment Facility is a monetary policy tool along with the Cash Reserve Ratio, Statutory Liquidity Ratio and Open Market Operation to control liquidity in the economy.
Detailed explanation-3: -LAF is a routine tool, whereas OMO is a contingent tool in monetary policy.
Detailed explanation-4: -A liquidity adjustment facility (LAF) is a tool used in monetary policy, primarily by the Reserve Bank of India (RBI) that allows banks to borrow money through repurchase agreements (repos) or to make loans to the RBI through reverse repo agreements.