What are the recommendations of the RBI Internal Group set up to review the current liquidity management framework?

The Reserve Bank of India (RBI) had formed an internal group in June 2019 to review the current liquidity management framework with a view to simplify it and suggest measures to clearly communicate the objectives and the toolkit for liquidity management. The committee has submitted its report.

Recommendations of the Committee

• Introduction of longer-term repo operations with market-related rates of up to one-year tenor as an alternative to open market operations conducted by the RBI to manage liquidity in the banking system.
• The group has suggested the adoption of longer-term repo operations, in addition to open market operations (OMOs) and forex swaps to manage liquidity in the system.
• Improving the daily dissemination through Money Market Operations (MMO) press release by including the ‘flow’ impact of liquidity operations.
• Publishing the quantitative assessment of durable liquidity conditions of the banking system to improve transparency.
• Retaining the current difference of 25 basis points between the repo rate and the reverse repo rate, as well as between the repo rate and the marginal standing facility (MSF) rate.

The RBI’s management framework was last reviewed in 2014. The RBI has decided to initiate a fresh review. The recommendations of the committee are placed in the public domain and public feedback on the working group’s recommendations has been invited.