Liquidity Management — Current Affairs 2026
Current Affairs Connections
RBI introduces Standing Deposit Facility replacing reverse repo rate
April 2022The introduction of SDF marked a significant evolution in India's liquidity management framework. This facility allows banks to deposit funds with the RBI without providing collateral, creating a cleaner interest rate corridor. The move addressed the challenge of managing structural surplus liquidity that emerged during the COVID-19 pandemic. SDF operates at 25 basis points below the repo rate, providing a clear floor for the policy corridor. This innovation demonstrates the RBI's adaptive approach to liquidity management, moving from a system dependent on collateralized reverse repo operations to an uncollateralized deposit facility.
UPSC Angle: UPSC may test understanding of why SDF was introduced, its operational differences from reverse repo, and its impact on monetary policy transmission effectiveness
RBI conducts Operation Twist to manage yield curve during COVID-19
December 2020Operation Twist involved simultaneous purchase of long-term government securities and sale of short-term securities to flatten the yield curve and reduce borrowing costs for the government. This unconventional monetary policy tool demonstrated the RBI's innovative approach to liquidity management during crisis periods. The operation helped manage the large government borrowing program while maintaining market stability. It represented a departure from traditional OMOs by targeting specific segments of the yield curve rather than overall liquidity conditions.
UPSC Angle: Questions may focus on unconventional monetary policy tools, their effectiveness in crisis management, and the coordination between fiscal and monetary policy during emergencies