Liquidity Adjustment facility (LAF), Marginal Standing facility (MSF), Repo, reverse repo, SLR, CRR, NEFT, RTGS, NDTL: meaning explained
Liquidity? Liquidity is a relative term. For assets: Rs.1 crore worth gold is more liquid than Rs.1 crore worth farmhouse. Because you can quickly sell the gold in a few days, but for selling farmhouse you’ll have to deal with so many prospective customers, real-estate agents, paper work, stamp duty etc., this would take more than 15 days= not so liquid. For banking: if yesterday SBI had Rs.100 to give as loan today SBI has Rs.200 to give as loan, then we say liquidity has increased. (And vice versa). In winter, supply of green vegetables increases (compared to summer) so selling price of green vegetables decreases in winter (compared to summer). Similarly when liquidity (money supply) increases, the cost of borrowing (=interest rates) goes down. Very high liquidity can create demand pull inflation=bad. for more, click me Very less liquidity=cost of borrowing is extremely high for businessman = bad because he cannot easily start or expand his business=less people get employment. S