A sharp uptick in credit demand, higher consumption during the festival season, and dollar sales by the Reserve Bank of India (RBI) in the foreign exchange market have led to liquidity in the banking system tightening sharply.
The weighted average call rate (WACR), which is the operating target of the RBI’s monetary policy, is currently at its highest since April 30, 2019, reflecting the shrinking liquidity in the system. The spread between the WACR and the repo rate, too, is at its highest since February 7, 2019 -- the day when the RBI started a monetary easing cycle, which saw