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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.
