RBI unlikely to re-introduce fixed-rate liquidity operations

The Reserve Bank of India is unlikely to re-introduce the policy of lending money daily to banks at a fixed rate, despite increased clamour for it from market participants, three sources said on Thursday (July 31, 2025).

The policy, called fixed rate liquidity operations, will help banks manage their needs better, several bankers proposed to the RBI in meetings held over the last few months. Banks had asked for the quantum of infusion to be fixed on a percentage of their deposit base.

“The RBI is clearly not in favour of hand-holding banks and wants to keep any liquidity operation on a variable rate,” one source said.

The sources requested anonymity as they are not authorised to speak to media. The RBI did not reply to a Reuters email seeking comment.

In variable repo or reverse repo, through which RBI injects or absorbs cash, banks have to undergo a bidding process based on their funding needs.

Last week, overnight inter-bank call money rates jumped above marginal standing facility rate, which is the policy corridor ceiling, after banks parked funds with RBI under reverse repos. They then faced a shortage after tax outflows.

“On days like that, it helps if there is a repo window available,” the second source said.

Lenders also asked for relaxation of daily maintenance of the cash reserve ratio, which is the percentage of deposits that they need to park with the RBI.

The RBI is also reviewing the liquidity management framework. The revised framework could be released alongside the monetary policy decision on August 6, some market participants said.

The sources said that the RBI may shift to a seven-day operation as the main liquidity tool, instead of the current 14-day auctions adopted in 2020. The bank has skipped conducting the 14-day operation since the last six fortnights.