For several weeks now, the tightness of domestic liquidity conditions has been highlighted by the fact that borrowing under the Liquidity Adjustment Facility (LAF) have been significantly above our comfort threshold of one per cent of Net Demand and Time Liabilities (NDTL). Recent developments in our liquidity management approach have involved making a distinction between the monetary stance and the liquidity stance (Chart 2).
In December 2010, we exploited this distinction by carrying out Open Market Operations (OMOs) to inject liquidity into the system, despite maintaining an antiinflationary monetary stance. We appear to be in a somewhat similar situation now. Some of the tightness is attributable to the smoothing interventions that were carried out in the foreign exchange market.