As a core function, the Reserve Bank of India (RBI) adopts a number of steps to manage liquidity in the economy. Consider the following statements with respect to liquidity management measures of the RBI in India:
1. Liquidity Adjustment Facility is a short-term liquidity management tool to absorb excess liquidity from the market and inject liquidity into the market to meet shortages.
2. Standing Deposit Facility is used by the RBI in emergency situations to absorb excess liquidity only.
Which of the statements given is/are correct?
1 only
2 only
Both 1 and 2
Neither 1 nor 2
Liquidity Adjustment Facility (LAF) is a monetary policy tool adopted by the Reserve Bank of India (RBI) to adjust liquidity in the economy on a day-to-day basis, through reverse and reverse repo auctions.
Standing Deposit Facility (SDF) is a monetary policy instrument introduced in the Annual Budget of 2018-19 to absorb excess liquidity from the market in the aftermath of demonetisation. SDF is a liquidity adjustment tool adopted in times of crisis. While under LAF, collateral is to be kept in the form of government securities, under SDF there is no requirement of keeping collateral. However, under both facilities, the interest to be paid is the repo rate.
The term 'West Texas Intermediate', sometimes found in news, refers to a grade of
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