SDG 8: Decent Work & Economic Growth | SDG 16: Peace, Justice & Strong Institutions
Institutions: Reserve Bank of India | Ministry of Finance
The Reserve Bank of India has finalised its revised Liquidity Management Framework following recommendations of the Internal Working Group (IWG) and stakeholder feedback. The overnight weighted average call rate (WACR) remains the operating target of monetary policy, with the repo rate at the centre of a symmetric corridor flanked by the Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) at ±25 basis points.
The 14-day variable rate repo/reverse repo (VRR/VRRR) will be discontinued as the main liquidity tool. Instead, liquidity will be managed primarily through 7-day VRR/VRRR operations, alongside other short-tenor operations as needed. The RBI will provide at least one day’s advance notice for liquidity operations, except in urgent situations.
Durable liquidity instruments such as OMOs, long-term VRR/VRRR, and forex swaps remain part of the toolkit. The requirement of maintaining 90% of prescribed CRR daily is unchanged. Standalone Primary Dealers will now have access to SDF and repo operations of all tenors.
The new framework simplifies liquidity management, reduces uncertainty for market participants, and strengthens the alignment of money market rates with the policy repo rate-key for effective monetary transmission.
What is Liquidity Management Framework? → The set of RBI tools and rules used to manage the supply of money in the banking system. By guiding short-term interest rates and system liquidity, it ensures monetary policy decisions translate into real economy outcomes.
What is the Overnight Weighted Average Call Rate (WACR)? → The average interest rate at which banks borrow and lend short-term funds to each other for one day. It is RBI’s main operating target for monetary policy transmission.
What is the Repo Rate? → The policy rate at which RBI lends to commercial banks against government securities. It signals the stance of monetary policy and anchors all short-term interest rates.
What is the Standing Deposit Facility (SDF)? → A window where banks park surplus funds with RBI without collateral. It acts as the floor of the policy corridor, 25 basis points below repo rate.
What is the Marginal Standing Facility (MSF)? → An overnight borrowing facility where banks can borrow from RBI against approved securities. It acts as the ceiling of the policy corridor, 25 basis points above repo rate.
What is the Cash Reserve Ratio (CRR)? → The minimum share of a bank’s deposits that must be kept with RBI as cash reserves. It helps RBI manage liquidity in the system.
What are Open Market Operations (OMOs)? → RBI’s purchase or sale of government securities in the open market to inject or absorb liquidity. It is a tool for managing durable liquidity conditions.
Follow the full news here: RBI Press Release on Liquidity Management Framework, August 2025