Which recommendation did the RBI’s Internal Working

Solution

The Internal Working Group (IWG) 2025 report recommended discontinuing the 14-day variable rate repo/reverse repo as the main liquidity management tool. The reason is that banks generally avoid locking funds for such a long period, especially when liquidity forecasts are uncertain. Instead, the group suggested weekly operations with flexible fine-tuning, which would enable better liquidity smoothing and enhance monetary policy transmission. This shows RBI’s intent to make liquidity management more adaptive to market realities.