Post-Pandemic Liquidity Management in India: An Empirical Study of the Liquidity Adjustment Facility and Other Money Market Measures

Authors: Yashasvi Harshad Shah, Sayyad Lalasab Kalesab, Memane Sayali Jalindar, Bhushan Santoshkumar Baheti, Ritika Choudhary

Country: India

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Abstract: The COVID-19 pandemic severely disrupted global financial systems, and India was no exception. In response, the Reserve Bank of India (RBI) adopted a series of money market operations most notably the Liquidity Adjustment Facility (LAF) to stabilize liquidity and ensure financial stability. This paper empirically examines the effectiveness of these liquidity management tools in the post-pandemic period from 2020 to 2024. Using secondary data from the RBI Database, monetary policy reports, and interbank call money rates, the study analyses trends in repo and reverse repo operations, changes in liquidity absorption and injection, and their impact on short-term interest rates and credit flow. The results suggest that while the RBI’s LAF operations successfully maintained overall liquidity and supported financial market recovery, structural liquidity mismatches persisted in certain sectors, particularly small and medium enterprises (SMEs) and the informal credit market. The paper concludes that LAF, supplemented by Open Market Operations (OMOs) and Variable Rate Reverse Repo (VRRR) auctions, played a crucial role in cushioning liquidity shocks. However, there remains a need for dynamic calibration of policy tools to address evolving macroeconomic challenges and improve liquidity transmission across financial institutions.

Keywords: Liquidity Adjustment Facility (LAF), Post-COVID-19 Monetary Policy, Money Market Operations, Reserve Bank of India (RBI), Liquidity Management, Financial Stability.

Paper Id: 232897

Published On: 2026-01-22

Published In: Volume 14, Issue 1, January-February 2026

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