From the second half of the 1990s, the Reserve Bank of India (RBI) switched to a multiple indicator approach in which high frequency and low frequency indicators are tracked and the information used to draw policy perspectives. Third, the growing market orientation of monetary policy has tilted the choice of instruments decisively from direct to more indirect and market-based monetary policy measures.
On the eve of reforms, statutory pre-emptions in the form of cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements locked away nearly 70 per cent of bank deposits, severely eroding the profitability of the financial system and effectiveness of monetary policy.