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Liquidity Adjustment Facility Corridor
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Quiz · Liquidity Adjustment Facility Corridor
Two Prelims-style questions on this topic from 11 October 2026. Choose an option to check yourself, then open the full note or today’s full quiz.
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Consider the following statements regarding the Liquidity Adjustment Facility (LAF) corridor of the Reserve Bank of India: 1. The Standing Deposit Facility (SDF) allows liquidity absorption without requiring the RBI to provide collateral government securities. 2. The Marginal Standing Facility (MSF) rate is pegged below the policy Repo rate, while the SDF is pegged above it. Which of the statements given above is/are correct?
A
2 only
B
Neither 1 nor 2
C
1 only
D
Both 1 and 2
Solution
With reference to the monetary policy tools of the Reserve Bank of India, what is the primary role of the Weighted Average Call Rate (WACR)?
A
It determines the foreign exchange reserve allocations for public sector oil marketing companies.
B
It acts as the penal borrowing window for commercial banks against their excess Statutory Liquidity Ratio (SLR) holdings.
C
It serves as the operating target of RBI monetary policy reflecting uncollateralised overnight interbank lending rates.
D
It functions as the collateral-free deposit rate floor for the entire Liquidity Adjustment Facility corridor.
Solution
