The RBI on Friday said it would restore normal liquidity management operations and would follow the guidelines on these matters announced almost a year ago but which had to be junked on account of the pandemic.

As part of this process, the central bank will hold a variable reverse repo auction on January 15 of Rs 2 lakh crore. It said ample liquidity will, however, continue to be available to the system.

The move comes with the economy showing signs of revival and financial markets stabilising, though sticky inflation remains a big concern.

The central bank in February last year had announced a “revised liquidity framework” and the instruments to be used to manage both transient and durable liquidity and their timing.

These instruments were a mix of variable rate — having overnight tenor and up to 13 days — repo and reverse repo auctions; fixed rate reverse repo auctions; long-term variable repo and reverse repo auctions of beyond 14 days and open market operations.

The pandemic forced the RBI to drop the guidelines. Because of the disruptions created by the lockdown, the window for fixed rate reverse repo — where banks park excess funds with the RBI — and marginal standing facility — a window where banks can borrow emergency funds from the RBI at a rate higher than the repo rate — operations were available throughout the day.

This was done to provide the market participants greater flexibility in their liquidity management.

Simultaneously, the Reserve Bank had also truncated trading hours for various market segments from April 7, 2020. With the phased roll-back of the lockdown and easing of restrictions on movement of people, the trading hours were restored in a phased manner from November 9, 2020.

“On a review of evolving liquidity and financial conditions, it has been decided to restore normal liquidity management operations in a phased manner,’’ the

RBI said on Friday. This will initially see the central bank conducting the Rs 2-lakh-crore variable rate reverse repo auction.

Market circles feel the short-term rates would rise now. The excess liquidity in the banking system seen post lockdown may get affected.

At present, market players are parking close to Rs 7 lakh crore in the RBI’s reverse repo window. Moreover, short-term rates also fell below the reverse repo rate of 3.35 per cent.