RBI to inject extra liquidity of ₹1 lakh cr.

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.