Monetary policy

The Reserve Bank sets policy through the Liquidity Adjustment Facility, a corridor with the repo rate at its centre, the standing deposit facility as the floor and the marginal standing facility as the ceiling. Operations inside that corridor decide how tightly overnight market rates track the policy rate.

The recurring design question is fixed-rate versus variable-rate operations: fixed-rate windows are predictable but let banks park liquidity passively, while variable-rate auctions price it and push the weighted average call rate back towards the repo.