RBI Likely to Adopt Secured Rate as New Benchmark Tool for Monetary Policy Operations

The Reserve Bank of India (RBI) is reportedly preparing to shift its operational benchmark for monetary policy transmission from the unsecured Weighted Average Call Rate (WACR) to a secured overnight rate, such as TREPS or the newly introduced Secured Overnight Rupee Rate (SORR).

Key Highlights:

• Reason for Shift:
  • The secured rates (TREPS/SORR) represent over 98% of overnight market volumes, offering a more robust and transparent benchmark than WACR, which is based on a smaller share of unsecured interbank trades.
• Liquidity Management Proposal:
  • Banks have urged RBI to replace the current 14-day variable rate reverse repo (VRRR) auctions with a fixed-rate daily repo to better handle 24×7 banking and fluctuating liquidity.
  • The move is expected to improve RBI’s ability to anchor short-term interest rates more effectively.
• Support Measures Being Considered:
  • A possible 100 bps cut in CRR (Cash Reserve Ratio) effective from September 2025 to infuse durable liquidity.
  • Integration of digital systems and operational tweaks to facilitate smoother monetary policy implementation.

Impact

• Improved policy transmission to money markets and commercial banks.
• Greater stability in short-term rates.
• Strengthening of monetary policy credibility and global integration of India’s financial markets.

TET