Mumbai: An internal working group (IWG) of the Reserve
Bank of India, mandated to review the current liquidity management
framework, has recommended the use of long term repo ops at market rates
to manage liquidity.
Lliquidity management is the operating procedure of monetary policy, which seeks to ensure that sufficient credit is provided to all productive sectors of the economy.
According to the report of the 'Internal Working Group to Review the Liquidity Management Framework', build-up of a large deficit or surplus, "if expected to persist, should be offset through appropriate durable liquidity operations".
In addition to open market operations and forex swaps, the group recommended longer term repo operations at market related rates.
Besides, the report said the current provision of assured liquidity - up to 1 per cent of NDTL (Net Demand and Time Liabilities) - is no longer necessary since the proposed liquidity framework would entirely meet the system's liquidity needs.
"Minimising the number of operations should be an efficiency goal of the liquidity framework. Consequently, there should be ideally one single overnight variable rate operation in a day, supported by fine-tuning operations, if required," it said.
Moreover, the IWG recommended the current liquidity management framework should largely continue in its present form - a corridor system with the call money rate as the target rate.
The Reserve Bank's liquidity management framework was last reviewed in 2014.
In June, the apex bank decided to set up an IWG to review comprehensively the existing liquidity management framework and suggest measures, among others, to simplify the current framework.