RBI Monetary Policy Report: Money Market Liquidity Eases
Why in the news
RBI’s latest Monetary Policy Report said short-end interbank liquidity had improved, although call rate volatility had not fully calmed.
Key facts
| Indicator | Reading |
|---|---|
| WACR-repo spread, March 2025 | 7 bps |
| WACR-repo spread, December 2024 peak | 15 bps |
| Record SDF parking | ₹4.13 trillion |
| MSF rate | 6.75% |
| VRR operations | 4 main auctions, 62 fine-tuning |
Volatility and stress
- WACR volatility, measured by EWMA, stayed high despite the narrower spread.
- In late December 2024 and early January 2025 the WACR went above the MSF rate of 6.75%.
- Banks avoiding uncollateralised lending near quarter-end and parking money in the Standing Deposit Facility fuelled the spikes.
Policy support
- Daily Variable Rate Repo operations were introduced.
- The repo rate was cut in February.
- RBI also took other liquidity injection measures; conditions eased after mid-January.
Outlook
- GST outflows and slower government expenditure could push liquidity into deficit.
- Market players still expect overnight rates to stay within the interest rate corridor, thanks to RBI support.
Exam angle
- Terms: WACR, MSF, SDF, VRR, EWMA.
- Report cited: RBI’s Monetary Policy Report.
- SDF launch: April 2022.