Monetary Policy and Liquidity Management by RBI

The Reserve Bank of India (RBI) has announced that it will continue using the overnight weighted average call rate (WACR) as the operating target for its monetary policy, supported by the existing corridor system for liquidity management.

Liquidity Management Framework

• The RBI aims to align the WACR with the policy repo rate through effective liquidity management.
• The framework adheres to recommendations from the RBI’s internal working group led by Deputy Governor Poonam Gupta and aligns with market expectations.

Policy Repo Rate and Corridor System

• The current policy repo rate is set at 5.50%.
• The corridor system comprises the Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF), set 25 basis points on either side of the repo rate, creating a floor and ceiling.

Changes in Liquidity Operations

• The 14-day variable rate repo/reverse repo operations will be discontinued and replaced by operations ranging from overnight to 14 days.
• The change addresses banks' difficulty in estimating fortnightly liquidity needs in a 24x7 payments environment.

Continued Liquidity Tools

• Variable rate repo and reverse repos, open market operations (OMOs), and forex swap auctions will remain part of the framework.
• The requirement to maintain a minimum of 90% of the prescribed cash reserve ratio daily will continue.

Access for Standalone Primary Dealers (SPDs)

• SPDs will have access to SDF, overnight reverse repo operations, and all repo operations, regardless of tenor.