Liquidity management tool: RBI may have to balance old norms with the new

There shouldn't be room for interpretation in new framework, say experts

The Reserve Bank of India’s (RBI's) internal committee on liquidity management framework may have to choose between traditional and radically new ideas while upgrading the way the present framework works, say experts.

The present framework says that liquidity should be determined based on a single rate approach, which is currently the policy repo rate. 

The indication of liquidity would be weighted average call money rate, or the overnight rate that banks use to lend and borrow among themselves. 

The approach is that the weighted average call money rate must ‘hug’ the policy repo rate. The present approach also says that liquidity should ideally