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Informist, Tuesday, Sept. 30, 2025

 

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--RBI releases revised Liquidity Management Framework 
--RBI: Weighted avg call rate to remain operating target of monetary policy 
--RBI: Will track other overnight money mkt rates to smoothen transmission 
--RBI: Retain current symmetric LAF corridor 
--RBI: Retain current symmetric LAF corridor 25 bps either side of repo rate 
--RBI: MSF rate to be 25 bps above repo, SDF rate to be 25 bps below repo 
--RBI: Will endeavour to align weighted avg call rate with policy repo rate 
--RBI: To discontinue 14-day VRR, VRRR ops as main liquidity mgmt tool
--RBI: To use 7-day VRR, VRRR ops as primary liquidity mgmt tool
--RBI: To use up to 14-day VRR, VRRR ops to manage liquidity as needed 
--RBI: Aim to provide at least 1 day advance notice to mkt on liquidity ops 
--RBI: May conduct liquidity ops on same day as announcement if required 
--RBI: Liquidity mgmt instruments like OMOs retained under revised framework
--RBI: Banks must hold minimum 90% of CRR requirement on daily basis 
--RBI: Standalone PDs to have access to SDF, all repo ops of all tenors
 

 

MUMBAI – The Reserve Bank of India Tuesday released a revised liquidity management framework, shifting to seven-day variable rate repo and reverse repo operations as its primary tool to manage transient liquidity. It discontinued the 14-day operations, which served as its main policy tool in the old framework adopted in February 2020.

 

The final framework is in line with the recommendations of an internal working group of the RBI, which were made public on Aug. 6. The central bank had sought comments on the group's report by Aug. 29, and received feedback. Several bankers said they had avoided giving substantial feedback to the central bank, having already interacted with the working group and seeing most of their demands being responded to unfavourably in the group's report and recommendations.

 

The central bank would also manage liquidity through operations from overnight to 14-day tenors to manage transient liquidity, it said. The overnight weighted average call rate will continue to be the operating target of monetary policy. The regulator will endeavour to align this rate to the policy repo rate through its various liqudity tools, both transient and durable, the RBI said. 

 

"The Reserve Bank will, however, continue to keep track of rates in other overnight money market segments to ensure orderly evolution of money market rates and smoothen transmission," the release said.

 

The Liquidity Adjustment Facility corridor also remains unchanged, with the Marginal Standing Facility the upper bound and the Standing Deposit Facility the lower bound. The corridor remains symmetric and the MSF rate will continue to be 25 basis points above the repo rate, while the SDF rate will be 25 bps below the repo rate, the revised liquidity framework said. 

 

As recommended by the working group, the RBI said in the new framework that it sought to reduce the uncertainty in the market on the tenor, quantum and timing of repo and reverse repo operations. Consequently, the central bank said it would provide sufficient advance notice of at least one day before conducting the auctions. However, it could still conduct such operations by announcing them the same day if required.

 

Banks also did not get additional flexibility in maintaining the cash reserve ratio. The RBI said banks will have to maintain a minimum of 90% of their fortnightly CRR requirement on a daily basis, in line with the working group's recommendations. Banks had sought a reduction of the daily minimum holding to 80% during consultations with the working group.

 

Meanwhile, there were no changes to the durable liquidity operations the RBI may draw upon to manage durable liquidity, it said. "Instruments under the extant liquidity management framework for managing durable liquidity viz. open market operations (OMOs), long-term variable rate repo/reverse repo operations and forex swap auctions will continue to be part of the revised liquidity management framework," the release said. 

 

Finally, standalone primary dealerships were given access to the Standing Deposit Facility, overnight reverse repo operations, and all repo operations irrespective of tenure. Underthe previous framework, these entities only had access to overnight liquidity management operations, and the revision Tuesday incorporates an RBI directive in March that gave them access to repo operations of all tenors.  End

 

Reported by Aaryan Khanna

Edited by Avishek Dutta

 

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