The Reserve Bank has articulated its approach to liquidity management in the form of “appropriate use of CRR stipulations, open market operations  BIS Review 86/2007  9  including MSS and LAF and all policy instruments at its disposal flexibly, as and when the situation warrants”.
In view of the surplus conditions in the financial markets, the ceiling on daily reverse repos under the LAF has been removed. The objective is to absorb excess liquidity and align overnight rates with the prevailing monetary policy stance so that policy signals are efficiently and transparently passed through into the structure of interest rates, aggregate demand and thereby, growth and stability.