The bulk of the volume in the overnight segment is in the Treps segment, where the rate has been about 12 basis points lower than repo.
Liquidity management is a key aspect of monetary policy, said Gaura Sen Gupta, chief economist at IDFC First Bank. “So, in any stance, their aim will be to make sure the WACR stays as close as possible to the repo rate. The WACR is somewhat aligned to the repo but, more importantly, the Treps rate has been below the repo rate since July.”
The Treps rate was 6.34% in October and 6.42% in September, show RBI data. The Treps segment permits participation by a broader set of market participants such as mutual funds and insurance companies in addition to banks. While the RBI regulates banks, others like insurers do not fall under the RBI’s jurisdiction.
The WACR for October was 6.35%, as the RBI conducted 14 variable rate reverse repo (VRRR) auctions to absorb excess liquidity. Banking system liquidity on an average was a surplus of ₹1.47 lakh crore, data showed. The WACR was 6.52% in September when the RBI conducted eight VRRR auctions and four variable rate repo (VRR) auctions as liquidity went into a brief deficit mode that month. The average surplus in September was ₹1.05 lakh crore.
“Currently, the RBI is very cautious about disrupting market volatility. They (RBI) want to ensure that market volatility is smoothened out. And hence you see they have been active on both sides in using finetuning operations to manage liquidity,” said an economist at a public sector bank.