Mumbai: The Reserve Bank of India (RBI) will undertake a comprehensive review of its monetary policy and liquidity management framework, it said in the annual report published on Thursday. This review will focus on analysing the monetary transmission mechanism, by assessing prevailing credit conditions, and optimising the management of durable liquidity. Additionally, the central bank also aims to enhance the precision of liquidity forecasts within the banking system.
In the assessment of the liquidity management framework, the implementation of the facility to upload multiple bids through a single file in an open market operation would also be available. Economists also suggest that the liquidity management framework would address the timings of the call money market, so banks can assess their liquidity conditions prudently.
"There seems to be discussions on timings of the market to extend them, which will bring down excess funds parked in the standing deposit facility (SDF) and deepen the call money market," said Madan Sabnavis, chief economist at Bank of Baroda. "Additionally, borrowings via the call money markets have come down substantially, as people borrow from the TREPS market where rates are much lower, this would also likely be addressed."
The liquidity management framework has been in operation since February 14, 2020 and instructions on liquidity management operations will be issued post completion of the review of the framework, the Reserve Bank of India said. The Reserve Bank of India, while reviewing the monetary policy framework, would also be reviewing what would be the optimal system liquidity surplus for effective monetary policy transmission.
In the assessment of the liquidity management framework, the implementation of the facility to upload multiple bids through a single file in an open market operation would also be available. Economists also suggest that the liquidity management framework would address the timings of the call money market, so banks can assess their liquidity conditions prudently.
"There seems to be discussions on timings of the market to extend them, which will bring down excess funds parked in the standing deposit facility (SDF) and deepen the call money market," said Madan Sabnavis, chief economist at Bank of Baroda. "Additionally, borrowings via the call money markets have come down substantially, as people borrow from the TREPS market where rates are much lower, this would also likely be addressed."
The liquidity management framework has been in operation since February 14, 2020 and instructions on liquidity management operations will be issued post completion of the review of the framework, the Reserve Bank of India said. The Reserve Bank of India, while reviewing the monetary policy framework, would also be reviewing what would be the optimal system liquidity surplus for effective monetary policy transmission.
