RBI Scraps 14-Day Liquidity Window, Switches To 7-Day Repo Operations

The 14-day variable rate repo (VRR) and variable rate reverse repo (VRRR) operation will be discontinued as the main operation for managing short-term or transient liquidity, according to the RBI's revised liquidity management framework.

Instead, the same will be managed primarily through 7- day VRR/VRRR and other VRR/VRRR operations of tenors from overnight up to 14 days, at the discretion of the central bank based on its assessment of the system liquidity requirement.

To reduce uncertainty in the market about the tenor, quantum and timing of the repo/reverse repo operations, the RBI will provide sufficient advance notice to market participants, at least by one day, while conducting any such liquidity operation, as per the revised framework, published on Tuesday. However, when circumstances warrant, the Reserve Bank would conduct operations by announcing on the same day, it added.

• The overnight weighted average call rate (WACR) will continue to be the operating target of the monetary policy. 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 existing symmetric corridor system is retained, with policy repo rate at the middle of the corridor and standing deposit facility (SDF) and marginal standing facility (MSF), which are 25 bps on either side of the policy repo rate, acting as the lower bound (floor) and upper bound (ceiling) of the corridor, respectively.

• The RBI will endeavour to align the WACR to the policy repo rate by ensuring optimum level of system liquidity using the instruments defined under this framework.

• 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 current requirement of maintaining a minimum of 90% of the prescribed CRR on a daily basis will continue.