Question

Consider the following statements about different short–term liquidity management measures taken by RBI:

Codes :

• A. 1 and 2 only
• B. 1 and 3 only
• C. 1 only
• D. All of these

Answer 1

The correct option is A

1 and 2 only

RBI now carries out short- term Liquidity Management through Open Market Operations in the form of outright purchase/sale of government securities and repo and reverse repo operation under LAF- (Liquidity Adjustment facility).

The OMOs are supplemented by change in Bank Rate/Repo Rate. LAF has emerged as principle instrument to modulate short-term liquidity. Thus is why the 1^st and 2^nd statements are correct. 3^rd statement is incorrect because the rate of MSF is generally kept 100 basis point above the repo rate.