RBI to inject extra liquidity of ₹1 lakh cr.
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RBI to inject extra liquidity of ₹1 lakh cr.

Context:

  • The Reserve Bank said it would inject additional liquidity of 1 lakh crore in banks through longer tenor instruments to enable flexibility towards meeting their fund needs.

Introduction:

  • This will be in addition to normal Liquidity Adjustment Facility (LAF) operations.
  • The RBI will conduct four variable rate term repo auctions of 25,000 crore each in March 2018.

Rationale behind this decision:

  • To address additional demand for liquidity.
  • To providing flexibility to the banking system in its liquidity management.
  • The proposed injection of additional liquidity will help cap the short-term rates and also aid in lowering the rate volatilities for the rest of the month.

Liquidity adjustment facility (LAF) :

  • Liquidity adjustment facility (LAF) is a monetary policy which allows banks borrow money through repurchase agreements.
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