What is Liquidity Adjustment Facility in simple words?
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What is Liquidity Adjustment Facility in simple words?
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.
What are the components of liquidity adjustment facility?
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.
Who can avail liquidity adjustment facility?
All Scheduled Commercial Banks (excluding Regional Rural Banks) and Primary Dealers (PDs) having Current Account and SGL Account with Reserve Bank, Mumbai will be eligible to participate in the Repo and Reverse Repo auctions. Bids will be received for a minimum amount of Rs.
Who can access LAF?
The Reserve Bank of India (RBI) today allowed regional rural banks (RRBs) to access the liquidity adjustment facility (LAF), marginal standing facility (MSF) and call or notice money market, aimed at facilitating better liquidity management for these lenders.
What is Liquidity Adjustment Facility Upsc?
Liquidity Adjustment Facility (LAF) is a tool used in monetary policy by the RBI, that allows banks to borrow money through repurchase agreements (repos) or for banks to make loans to the RBI through reverse repo agreements.
Is MSF higher than LAF?
Repo rate is always 100 basis points higher than MSF lending rate….
| LAF | MSF |
|---|---|
| All clients of RBI are eligible to bid. | Only scheduled commercial banks can bid. |
| Bank cannot sell Government security to RBI that is part of bank’s SLR quota. | bank can sell the Government security from its SLR quota to RBI. |
Can RRB participate in money market?
2. Accordingly, RRBs shall be permitted to participate in the call/notice and term money markets both as borrowers and lenders.