Mecklai graph: Steadiness in overnight rates

Mecklai graph of the day: Steadiness in overnight rates

It can be seen from the below graph that the liquidity deficit has risen because of which RBI infused liquidity via its LAF repo window. But an interesting feature to notice is that the call rates have been steady over a period of time in spite of a heavy liquidity crunch in the interbank market. Recently the crunch was due to the advance tax outflows, which was a temporary phenomena and the RBI addressed it by announcing two rounds of OMO to further ease the liquidity in the market. A bigger applause for this steadiness can be attributed to the RBI. It was in the monetary policy of May 2010 that RBI came with certain changes in the existing operating procedures of monetary policy, and the repo rate gained significance from there on. The RBI linked repo with the Marginal Standing Facility (MSF) and made the call money rate the operating target for the monetary policy. This has in effect resulted in the stabilization of the money markets in India. So, are the Indian money markets evolving similar to the G10 markets and will this stabilization in the call rates sustain or be overturned in a deficit situation is a factor to be watched ahead. The below graph shows the rates in the call money market and the amount borrowed through the LAF repo window.                         Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.