Since the beginning of the year, the Bank has improved the operational efficiency of its monetary policy, bringing the short-term money market rates within the corridor of the Key Repo Rate. Through the conduct of open market operations to remove structural excess liquidity from the system, the disconnect between the KRR and money market rates was corrected.
The excess liquidity legacy which has hindered the transmission of monetary policy, and subject to concerns in various quarters, has been addressed. The focus on excess liquidity is often blurred by the reference to balances that are kept over and above statutory requirement of the cash reserve ratio. However, the excess liquidity comprises both rupee and foreign currency excess liquidity.