- On August 23, the overnight call money rate in India rose to a five-month high of 6.96%.
- Current market prices for the weighted average overnight call money rate are 6.8109%.
- After the I-CRR announcement, the liquidity surplus drastically decreased and turned into a deficit.
On August 23, the overnight call money rate in India rose to a five-month high of 6.96 percent as a result of increasing demand for funds from banks as a result of the banking system’s liquidity turning into a deficit.
The rate is the price at which banks borrow and lend short-term funds on the money market. The overnight call money rate peaked at 6.96 percent during the day, which is the highest level since March 31, 2023, after starting the day at 6.85 percent.
Call rates
Current market prices for the weighted average overnight call money rate are 6.8109 percent. The TREPS rate, which is now hovering at 6.75 percent, is only 5 to 6 basis points higher than the weighted average call money market rate, which is only 6.81 percent and typical.
Since March 26, 2023, the banking system’s liquidity has been in deficit. A deficit of around Rs 15,552.43 crore, as opposed to Rs 23,644.43 crore, exists in the banking system’s liquidity at the moment.
By keeping an I-CRR of 10% of their rise in NDTL between May 19 and July 28, scheduled banks must reduce their excess liquidity by more than Rs. 1.42 lakh crore as of August 13.
After the reintroduction of the Rs. 2000 banknotes to the banking system, the central bank introduced the I-CRR to control the excess surplus liquidity in the economy.
The amount of liquidity in the banking system has increased significantly over the past few months, but after the I-CRR announcement, the liquidity surplus has drastically decreased and turned into a deficit.
Money market traders anticipate that liquidity will improve over the next few days as government expenditure on salaries and pensions begins to take effect at the end of the month.
