In recognition of the fact that monetary transmission will be better if the liquidity in the system is in deficit, the Reserve Bank’s position on liquidity as articulated in the recent monetary policy statements aims to “.... manage liquidity to ensure that monetary transmission remains effective, without exerting undue stress on the financial system”.7 Challenges on the way forward!
The new operating procedure of monetary policy has been drawn up in order to remove the drawbacks experienced in the earlier LAF framework and it is consistent with the international best practices.