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Central Bank to Look Into Transmission and Liquidity Management Models

1 min read

Review of RBI's Monetary Policy and Liquidity Management Framework

The Reserve Bank of India (RBI) has announced a comprehensive review of its monetary policy and liquidity management framework, as stated in its recent annual report.

Objectives of the Review

  • Analyse the monetary transmission mechanism by assessing current credit conditions.
  • Optimise the management of durable liquidity.
  • Enhance the precision of liquidity forecasts within the banking system.

Key Aspects of the Liquidity Management Framework

  • Implementation of a facility allowing multiple bids through a single file in an open market operation.
  • Addressing the timings of the call money market to allow banks better assessment of their liquidity.

Insights from Economists

  • Discussions about extending market timings to reduce excess funds in the standing deposit facility (SDF) and deepen the call money market.
  • Decline in borrowings via call money markets as people prefer the TREPS market due to lower rates.

Framework Implementation

The liquidity management framework has been operational since February 14, 2020. Instructions on liquidity management operations will follow the review's completion.

Conclusion

  • The RBI aims to determine the optimal system liquidity surplus for effective monetary policy transmission.
  • Tags :
  • Liquidity Management Framework
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