Liquidity Adjustment Facility (LAF)

This is the mechanism through which the RBI drains out funds (reverse repo) or injects money (repo rate) into the banking system.

Actually this is the window through which the RBI conducts its repos and reverse repos.

RBI conducts both these operations depending on the demand and supply of funds in the banking system. If RBI thinks that there is more money chasing few goods it drains out the excess by opening the reverse repo window. If the money supply is tight, RBI opens the repo window.


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