Answer: Reverse Repo auctions – for absorption of liquidity, Repo auctions – for injection of liquidity
Notes: The correct answer is "Reverse Repo auctions – for absorption of liquidity, Repo auctions – for injection of liquidity." 1. Reverse Repo Auctions: Conducted by central banks to absorb excess liquidity from the banking system, effectively reducing the money supply. 2. Repo Auctions: Used to inject liquidity into the banking system by allowing banks to borrow money against securities, increasing the money supply. 3. Liquidity Adjustment Facility (LAF): A tool used by central banks to manage liquidity and stabilize interest rates, typically involving both repo and reverse repo operations. This mechanism is crucial for monetary policy implementation.
