RBI retains call rate as policy target, discontinues 14-day VRR, VRRR
Mumbai, Sep 30, 2025
RBI has revised its liquidity management framework, retaining the call rate as policy target while phasing out 14-day VRR and VRRR in favour of shorter tenor operations
The Reserve Bank of India (RBI) has retained the overnight weighted average call rate (WACR) as the operating target of monetary policy under a revised liquidity management framework, the central bank said in a release on Tuesday.
“The overnight weighted average call rate (WACR) will continue to be the operating target of the monetary policy. The Reserve Bank will, however, continue to keep track of rates in other overnight money market segments to ensure orderly evolution of money market rates and smoothen transmission,” the release said.
In August, the RBI had set up an internal working group to review the liquidity framework, which seeks to align market rates with the key policy rate to ensure effective monetary transmission.
The existing liquidity framework has been in place since February 2020. The group submitted its report, following which comments were invited from stakeholders and the public by August 29, 2025.
Under the revised framework, the RBI has also retained the existing symmetric corridor system, with the policy repo rate at the midpoint. The Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) remain 25 basis points below and above the repo rate, respectively, serving as the corridor’s floor and ceiling.
Further, the RBI will continue to align the WACR closely with the policy repo rate by maintaining an optimal level of liquidity in the banking system, using the full set of instruments in the framework.
As part of operational changes, the RBI will discontinue the use of 14-day Variable Rate Repo (VRR) and Variable Rate Reverse Repo (VRRR) as the main tools for managing short-term liquidity.
These will be replaced primarily by 7-day VRR/VRRR operations, along with other operations of varying tenors, from overnight to 14 days, depending on the central bank’s assessment of liquidity needs.
To enhance transparency and reduce uncertainty, the RBI will provide market participants with at least one day’s advance notice specifying the tenor, quantum, and timing of operations. However, in exceptional circumstances, operations may be conducted on the same day without prior notice.
All instruments currently used for managing durable liquidity, including open market operations (OMOs), long-term variable rate repos/reverse repos, and foreign exchange swap auctions, will continue to be part of the updated framework.
The requirement for banks to maintain at least 90 per cent of their prescribed cash reserve ratio (CRR) on a daily basis will remain in force.
In addition, standalone primary dealers (SPDs) will continue to have access to the SDF, overnight reverse repo operations, and all repo operations, regardless of tenor.
[The Business Standard]
