- An LAF is a monetary policy tool used by the RBI in India through which it injects or absorbs liquidity into or from the banking system.
- It was introduced as a part of the outcome of the Narasimham Committee on Banking Sector Reforms of 1998.
- Two Components of LAF
- Repo Rate: Repo Rate is the rate of interest at which the RBI provides short-term loans to SCBs against approved securities.
- Reverse Repo: The rate of interest at which the RBI borrows funds from Scheduled Commercial Banks.
Source: The Hindu