Liquidity adjustment facility: A primer

The RBI narrowed the 'corridor' of its liquidity adjustment facility (LAF) by 25 basis points (bps)

The Reserve Bank of India (RBI), in its monetary policy on April 6, narrowed the ‘corridor’ of its liquidity adjustment facility (LAF) by 25 basis points (bps). This was done by raising the reverse repo rate to six per cent from 5.75 per cent, while keeping the repo rate intact at 6.25 per cent.

Repo signifies the rate at which liquidity is injected in the banking system by the RBI whereas reverse repo signifies the rate at which the central bank absorbs liquidity from the banks. Both the rates are overnight and create the benchmark for other overnight rates