The LAF is able to take care of very short period flows. The MSS handles the longer term flows slightly better than the LAF, and the CRR is more appropriate for addressing fairly longer term flows. However, effectiveness of the MSS will depend more on the initiatives of the market participants than on the decisions of the Reserve Bank.
Operationally, the issue is often not “which” instrument but “how much” of each instrument needs to be utilised, with due regard to the capital flows, market conditions, and monetary as well as credit developments. Sixth, the market interventions for containing volatility in exchange rate and the consequent sterilisation operations may need to be complemented by measures for effective capital account management, as needed.