In recent years, various measures have been taken to improve the functioning of different segments of the financial markets and thereby, to improve the operational effectiveness of monetary policy. The Liquidity Adjustment Facility (LAF), which was introduced in June 2000 has emerged as an effective and flexible instrument for managing liquidity on a day-to-day basis.
In the second stage of the LAF, which commenced from May 2001, variable rate repo auctions replaced the collateralised lending facility and Level I support to primary dealers. Standing facilities were rationalised and a back-stop facility was introduced at variable market-related rates.