The WACR, which is the operating target of the RBI‘s monetary policy, was at 6.53% the previous day. The WACR typically eases when liquidity conditions in the banking system is in a surplus mode.
Money market dealers attributed the higher WACR to skewed distribution of liquidity in the banking system on Monday, with some state-owned banks said to be experiencing a shortfall.
“Public sector banks, who are typically lenders, are facing a deficit. Hence there is no lending happening, which could be the reason why the WACR is 18 basis point higher than the repo rate”, said a bond trader with a primary dealership.
The banking system liquidity, as measured by net absorption of funds by the RBI, stood at a surplus of Rs. 79,806 crore, as of September 29th, central bank data showed. Banking system liquidity was briefly in deficit this month due to advance tax and GST payments, but is back in surplus mode due to an increase in government spending, traders said.
The Reserve Bank of India will conduct a 4-day variable rate reverse repo auction (VRRR) tomorrow of Rs. 1.75 lakh crore.The VRRR auction is just one of the many tools that the RBI can use to drain out excess liquidity in the banking system.Yields on the 10 year benchmark government security were largely steady, and closed at 6.75% on Monday, as compared to 6.77% the previous day, CCIL data showed.
