RBI liquidity operations to match monetary policy stance: Annual report

Central bank says it uses 'judicious mix' of instruments to regulate liquidity

The Reserve Bank of India’s (RBI) liquidity operations will match its monetary policy, said the central bank in its 2023-24 annual report on Thursday.

RBI governor Shaktikanta Das said in February that the monetary policy stance is tied to rates. The Monetary Policy Committee's stance of the withdrawal of accommodation should be understood in light of incomplete transmission and inflation staying above the 4 per cent target.

“What we have attempted to do today is to clarify and state that, do not read the stance of the monetary policy in terms of excess liquidity prevailing or deficit liquidity prevailing in the system. Liquidity plays a secondary role to support monetary policy transmission. We try to keep the liquidity at a level wherein the overnight call rate, the operating target of the monetary policy, remains around the repo rate,” Das had said at the post-policy press conference.

After increasing the repo rate by 250 basis points to 6.5 per cent between May 2022 and February 2023, the rate-setting panel has kept it unchanged in the past seven policy review meetings. The committee maintained a status quo in six meetings in the financial year 2023-24.

The RBI has been agile and adaptable in its liquidity management, employing both repo and reverse repo operations. It has been administering a “judicious mix” of instruments to regulate both short-term and long-term liquidity, ensuring that money market interest rates evolve systematically while maintaining financial stability, according to the annual report.

Foreign exchange operations will aim to ensure orderly movements in the rupee's exchange rate. The RBI has been “actively intervening” in the foreign exchange market to curb volatility, it said.