What is Liquidity?
Liquidity refers to the ease with which an asset or security can be converted into cash without significantly affecting its market price. In a broader sense, it refers to the availability of cash and credit in the economy or financial system, crucial for smooth economic functioning.
Historical Background
The concept of liquidity is fundamental to financial markets and banking. Central banks have always managed liquidity to ensure the smooth functioning of the banking system and the broader economy. Post-1991 reforms, as India's financial markets deepened, liquidity management became a more sophisticated aspect of monetary policy.