Differentiate between the functions of the Monetary Policy Committee and RBI's day-to-day liquidity operations, citing recent examples.

Under Section 45ZB of the RBI Act, 1934, a six-member Monetary Policy Committee (MPC) determines the policy repo rate needed to achieve the CPI inflation target of 4% (±2%) [1][2]. Liquidity management, by contrast, is RBI's own executive operation that steers money-market rates towards that repo rate. The two differ in legal basis, objective, instrument and horizon.

Legal basis and periodicity

• MPC is a statutory body, chaired by the Governor with three external members; it must meet at least four times a year, and its resolution is binding [1].
• Liquidity operations need no committee sanction — RBI conducts them daily under the Liquidity Adjustment Facility (LAF), whose design flows from the Internal Group on LAF [5].

Price of money versus quantity of money

• MPC fixes the price of money — the repo rate and the policy stance — as a medium-term signal to anchor inflation expectations.
• Liquidity operations manage the quantity of bank reserves so that the Weighted Average Call Rate (WACR), the operating target, stays aligned with the repo rate [2].

Instruments and recent examples

• MPC's toolkit: repo rate changes, stance, and CRR/SLR decisions announced in the bi-monthly statement.
• RBI's toolkit: VRRR and VRR auctions, OMOs, forex swaps, MSF/SDF. On 22 September 2026, an overnight VRRR auction absorbed ₹71,971 crore of the ₹75,000 crore notified at a 5.24% cut-off with 96% bid cover — draining surplus created by FCNR(B) swap inflows without altering the repo rate [3].
• The Internal Working Group on the Liquidity Management Framework retained WACR as operating target, replaced 14-day VRR/VRRR as the main operation with 7-day and shorter tenors, and advised prior notice of auctions [4].

In sum, the MPC decides where rates should be; RBI's operations ensure rates actually get there. Their complementarity — one rule-bound and transparent, the other flexible and market-facing — is what makes monetary transmission credible, and strengthening durable-liquidity tools alongside short-tenor auctions is the logical way forward.