RBI sets up working group to review monetary policy procedures
13 Sep 2010
The Reserve Bank of India has constituted a working group to review the current procedures of monetary policy operations, including liquidity adjustment facility (LAF).
The working group, chaired by Deepak Mohanty, executive director of the RBI, will have representation from the concerned departments of the RBI, the Indian Banks' Association (IBA) and the Fixed Income Money Market and Derivatives Association of India (FIMMDA). Besides, the group will include external experts, an RBI release said today.
The working group will review the current operating procedure of monetary policy in India, in particular, the liquidity adjustment facility (LAF) vis-a-vis the operating procedures of monetary policy of other major central banks.
The working group will examine the operation of the LAF with regard to the width of the corridor, the frequency and timing of auctions, the role of the Bank Rate, the role of standing facilities such as the export credit refinance and suggest changes to the current operating procedure of monetary policy in the light of international practices and domestic experience.
The working group will suggest whether there should be a corridor at all and, if so, whether its width should be fixed or variable under specified conditions and if so, what instruments/mechanisms may be necessary to enable the corridor to function efficiently.
RBI said the operating procedure of monetary policy has witnessed significant changes in recent years with the development of the money market and changes in liquidity conditions. RBI now increasingly uses the Liquidity Adjustment Facility (LAF), introduced in June 2000, as the principal operating instrument for modulating short-term liquidity.
The repo and the reverse repo rates, along with the cash reserve ratio (CRR), open market operations (OMO) and market stabilisation scheme (MSS), now detail RBI's monetary policy stance.
The review of monetary policy procedures has been necessitated by India's increasing integration with the global economy, large volatility in capital flows and sharp fluctuations in government cash balances, the RBI said.
