The weighted average call rate (WACR) was at 6.47% on Tuesday, up from 6.49% the previous day. The WACR is the operational target of the RBI’s monetary policy and is closely aligned with the central bank’s repo rate, which is currently at 6.50%.
Liquidity in the banking system has been in surplus continuously for the past three months since June this year, driven by fresh government spending and inflows into domestic stocks and bonds.
Foreign portfolio investors bought $2.9 billion worth of fully accessible Indian government bonds in August this year, according to CCIL data, while inflows into equities stood at $873 million last month, according to National Securities Depository Center (NSDL) data.
However, the Reserve Bank of India Governor has reiterated that excess liquidity does not indicate a change in the stance of the monetary policy framework. The stance of the Reserve Bank of India’s Monetary Policy Committee is to withdraw easing measures. The yield on the benchmark 10-year government bond is stable at 6.87%, but is gradually declining despite the Reserve Bank of India maintaining its easing stance. As of August 2, the yield on the benchmark 10-year government bond was 6.91%, according to LSEG data. “Yields are declining despite the Reserve Bank of India maintaining a hawkish stance. There is a lot of demand from banks and insurance companies, and demand is far greater than supply. “Commodity prices (crude oil) are also not surging despite the global situation,” said Naveen Singh, head of trading at ICICI Securities Primary Dealer. Brent crude oil prices fell $1.66, or 2.1%, to $75.86 a barrel on Tuesday, according to Reuters.
Singh expects the 10-year Treasury yield to fall to 6.7% by the end of this year.
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