Economics · Monetary Policy
Consider the following statements regarding the Indian money market dynamics: Statement 1: The Standing Deposit Facility (SDF) was introduced as the floor of the Liquidity Adjustment Facility (LAF) corridor to absorb surplus liquidity from the banking system without the need for government securities as collateral. By setting the SDF rate 25 basis points below the policy Repo rate, the RBI provides a consistent floor for overnight segment rates. Statement 2: Variable Rate Reverse Repo (VRRR) auctions have become a key tool for the Reserve Bank of India to absorb systemic liquidity and align the Weighted Average Call Rate (WACR) with the policy Repo rate. Statement 3: The Cash Reserve Ratio (CRR) is a mandatory requirement that forces commercial banks to keep a certain percentage of their Net Demand and Time Liabilities (NDTL) with the central bank in the form of interest-free cash balances, impacting the money multiplier. Which of the statements provided above are accurate?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1All Statement 1, Statement 2, and Statement 3 are correct✓
- 2Only Statement 1 and Statement 3 are correct
- 3Only Statement 2 and Statement 3 are correct
- 4Only Statement 1 and Statement 2 are correct
Correct answer
All Statement 1, Statement 2, and Statement 3 are correct
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