ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Towards a Full-Fledged Liquidity Adjustment Facility

The measures undertaken by the Reserve Bank to strengthen indirect instruments of monetary control raise two crucial issues: first, the macro perspective embedded in the structural measures and, second, the operational implications of moving to a marketdetermined liquidity adjustment facility.

Interest Rate Disjunctions

The liquidity support required from the Reserve Bank to sustain the reduced levels of Bank rate and repo rate may turn out to be large as there may arise a notable disjunction between these two rates and the call money rate. One probable answer might be to further reduce the cash reserve ratio and release more liquidity into the system.

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