MUMBAI (Reuters) -An internal working group of the Reserve Bank of India has recommended keeping the overnight weighted average call money rate (WACR) as the operative target of monetary policy, the central bank governor said on Wednesday.
The group has also recommended conducting variable rate repo, or VRR, and reverse repo or VRRR operations of different tenors to keep the WACR aligned with the policy rate, he added.
The RBI infuses funds into the banking system using repos and withdraws cash using reverse repos.
“The group has submitted its report and the same will be placed on the RBI website shortly for public consultation,” governor Sanjay Malhotra said.
The internal working group of the central bank has been studying the current liquidity management framework that has been in place since February 2020.
The governor further added that WACR is highly correlated with other overnight money market rates in the collateralised segments, and is also effective in transmitting signals to other money market instruments across maturities.
The operative target is the market rate the central bank seeks to align with its policy repo rate through market operations.
Meanwhile, the governor reiterated that the RBI will continue to be nimble and flexible in its liquidity management.
“We will endeavour to maintain sufficient liquidity in the banking system so that the productive requirements of the economy are met and transmission to money markets and credit markets remains smooth,” Malhotra added.
Daily average banking system liquidity surplus stood at around 3 trillion rupees in July and has gone up to around 4 trillion rupees in August, according to RBI data.
(Reporting by Swati Bhat and Sudipto Ganguly, Editing by Mrigank Dhaniwala and Ronojoy Mazumdar)
