Archive · 6 Aug 2025
RBI Panel Recommends Liquidity Management Changes
A Reserve Bank of India group looked at how money is managed in the economy and made some suggestions.
They want to keep using the overnight Weighted Average Call Rate (WACR) to control interest rates.
They also want to stop using 14-day auctions where banks lend money to the RBI.
Instead, they will use 7-day loans.
The group believes that WACR helps set rates and that 7-day loans will manage short-term money needs better.
RBI panel suggests retaining the overnight Weighted Average Call Rate (WACR) as the operating target.
The panel recommended phasing out 14-day variable rate repo and reverse repo auctions (VRR/VRRR).
WACR and overnight rates show a high correlation, signaling market rates effectively.
Banks showed reluctance in 14-day reverse repo operations, favoring the SDF facility.
The panel suggests managing transient liquidity through 7-day repo/reverse repo operations.
- Who
- An internal working group of the Reserve Bank of India (RBI).
- What
- RBI panel recommended keeping WACR and phasing out 14-day VRR/VRRR auctions.
- When
- Report published August 6, 2025.
- Where
- The recommendations apply to the Indian financial market.
- Why
- To improve liquidity management and market rate signaling.
Expert Opinions
RBI's View
Market Mechanism
Expert Opinions
Suggests transition towards a hybrid or broader money market rate, with access to select non-bank regulated entities.
RBI's View
The findings of the report are on expected lines with no major changes recommended by the committee in the functioning of the market mechanism.
- Operating Target
- Overnight Weighted Average Call Rate (WACR)
- Auctions to be Phased Out
- 14-day variable rate repo and reverse repo auctions (VRR/VRRR)
- Alternative for managing liquidity
- 7-day repo/reverse repo operations
- Report Findings
- Expected with no major changes in market mechanism.