Liquidity surplus in the banking system, measured by funds that lenders park with the central bank, climbed to its highest level in 9 months on accelerated government expenditure and overseas inflows into local financial assets, helping drive down money market rates.
The weighted average call rate, an operating target for the rate-setting panel at Reserve Bank of India (RBI), declined 13 basis points below the current repurchase rate of 6.50% on Thursday. This call rate represents overnight borrowing costs for banks. One basis point is 0.01 percentage point.
Typically, around 60% of government expenditure occurs in the first six months of a financial year. The Centre has earmarked Rs 10 lakh crore in the current fiscal for capex. Last fiscal, the government adopted a slower approach to capex spending until clarity emerged on its revenue streams, analysts said. According to analysts, it was likely that amid its large spending push, the government was currently availing of the WMA.
