In order to meet the challenges thrown by financial liberalisation and the growing complexities of monetary management, the Reserve Bank switched from a monetary targeting framework to a multiple indicator approach from 1998-99. Short-term interest rates have emerged as the key indicators of the monetary policy stance. A significant shift is the move towards market-based instruments away from direct instruments of monetary management.
In line with international trends, the Reserve Bank has put in place a liquidity management framework in which market liquidity is managed through a mix of open market (including repo) operations (OMOs), changes in reserve requirements and standing facilities, reinforced by changes in the policy rates, including the Bank Rate and the short term (overnight) policy rate.