The Liquidity Adjustment Facility or LAF which is operated by the RBI is a very important Monetary Policy Tool used by the Central Bank to ensure that liquidity in the economy is at the optimum level. The money supply in the Indian economy is managed by the RBI using the LAF tool. In this video I will explain the 2 important components of the LAF namely the Repo Rate and the Reverse Repo Rate. The Repo rate is also called the repurchase agreement or the repurchase option. I will explain how the repo transaction actually takes place between the bank and the RBI and also the reverse repo transaction.You will also learn about Primary Dealers or PDs and which are the ones registered by RBI. I will also explain the LAF Bid Size and the Borrowing Limits and what type of liquidity is managed by this liquidity adjustment facility of the Reserve Bank of India. This video is extremely important for the RBI Grade B exam aspirants and anyone interested in banking, finance and economics.

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