The Reserve Bank of India (RBI) is planning a key meeting with banks to review how it manages the flow of money in the financial system. This move aims to ensure that changes in RBI’s interest rates have the desired impact on the overall economy.
Key Points:
• RBI will hold a meeting with bank executives on May 21.
• The meeting will include Deputy Governor Poonam Gupta and other senior RBI officials.
• It is being held ahead of the next RBI policy announcement on June 6.
• The main topic of discussion will be liquidity management — how RBI controls the amount of money available in the system.
• RBI recently shifted from a cash deficit to a surplus in the banking system, showing it is actively adjusting liquidity.
• One focus will be on the overnight weighted average call rate, which is the rate at which banks lend to each other overnight.
• This rate is meant to align closely with the RBI’s policy rate.
• However, this link has often been weak in recent years.
• RBI may also discuss a new benchmark rate called the Secured Overnight Rupee Rate, which could replace the current Mumbai Interbank Outright Rate used for pricing interest rate derivatives.
This meeting reflects RBI’s ongoing efforts to make its monetary policy more effective in supporting economic growth.