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LIQUIDITY MANAGEMENT IN THE SYSTEM
What is the primary objective of liquidity management by the Reserve Bank of India?
The primary objective is to ensure adequate liquidity in the banking system to support credit growth and economic activity while maintaining monetary stability and keeping short-term interest rates close to the policy repo rate.
What is the primary tool RBI uses to inject liquidity into the banking system on an overnight basis?
Repo under LAF is the primary overnight liquidity injection tool.
What is the Liquidity Adjustment Facility (LAF) and what is its key purpose?
LAF is an RBI monetary policy tool introduced in 2000 that allows banks to borrow money through repurchase agreements (repo) or lend to RBI via reverse repo, enabling day-to-day management of liquidity and short-term interest rates.
What is the current policy rate that serves as the benchmark for short-term borrowing cost in India?
The repo rate is the benchmark short-term borrowing cost policy rate.
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