Still, history suggests that expansions do not usually end because aggregate demand spontaneously weakens, but rather as a result of excessively buoyant demand, resulting in an overheated economy and an associated acceleration of inflation.
First, explicit announcement of an operating target makes market participants clear about the desired policy impact. Second, a single policy rate removes the confusion arising out of policy rate alternating between the repo and the reverse repo rates, and makes signalling of monetary policy stance more accurate. Third, MSF provides a safety valve against unanticipated liquidity shocks.