Thus, under the new operating procedure, all the three other rates announced by the Reserve Bank, i.e., reverse repo rate, MSF rate and the Bank Rate, are linked to the single policy repo rate. The new operating procedure was expected to improve the implementation and transmission of monetary policy for the following reasons.
First, explicit announcement of an operating target makes market participants clear about the desired policy impact. Second, a single policy rate removes the confusion arising out of policy rate alternating between the repo and the reverse repo rates, and makes signalling of monetary policy stance more accurate. Third, MSF provides a safety valve against unanticipated liquidity shocks.