WACR better aligned with repo rate amid improved liquidity: RBI report

RBI's 'State of the Economy' report notes improved alignment between the weighted average call rate and repo rate under the revised liquidity management framework

The weighted average call rate (WACR) showed better alignment with the policy repo rate during September 16-October 16, compared to the previous month, according to the Reserve Bank of India’s (RBI’s) monthly report, ‘State of the Economy,’ released on Monday.

 

Following the revised liquidity management framework announced on September 30, the WACR continues to serve as the operating target for monetary policy.

 

The report has been authored by RBI staffers with guidance from Deputy Governor Poonam Gupta. The views in the report are those of the authors and not of RBI, it was clarified.

 

During this period, the WACR largely hovered around the policy rate. It traded above the repo rate in the latter half of September due to temporary liquidity tightness from tax outflows, before easing below the policy rate as liquidity improved in early October.

 

In response, the RBI conducted two variable rate reverse repo (VRRR) auctions on October 9 and October 15.

 

“The WACR generally hovered around the policy repo rate in September and October. It traded above the policy rate during the latter half of September on temporary tightness in liquidity demand due to tax outflows. The WACR moved below the policy rate as liquidity conditions improved since the beginning of October, prompting the RBI to conduct two variable rate reverse repo auctions,” the report said.

 

The report added that overnight rates in the collateralised segments, as measured by the benchmark secured overnight rupee rate, moved broadly in line with the uncollateralised rate.

 

In the money market, average yields on three-month Treasury Bills eased. Those on three-month certificates of deposit and commercial papers (CPs) issued by non-banking financial companies (NBFCs) hardened, widening the average risk premium, the spread between three-month CP and 91-day treasury (T)-Bill yields.

 

In the fixed-income market, shorter-end yields declined in the latter half of September and into October (up to October 17), while longer-end yields remained broadly stable. As a result, the average term spread between the 10-year government security and the 91-day T-Bill yield edged up marginally during this period.