homeeconomy NewsInter bank call rate declines below repo rate, sparks speculation on monetary policy shift
Inter-bank call rate declines below repo rate, sparks speculation on monetary policy shift
Inter-bank call rate is the rate at which banks borrow from each other for a one-day period. The Reserve Bank of India (RBI) had maintained a policy of tight inter-bank call rate in recent months, a strategy influenced by the government's cautious spending approach as well as the spike in inflation, reaching 7.8% in July and August, primarily driven by the surge in tomato prices.
On Monday, India witnessed its inter-bank call rate—the rate at which banks borrow from each other for one day—dipping below the long-standing repo rate of 6.5%. The development marks a departure from the trend observed over the past four to five months, where the call rate had been oscillating between 6.75% and 6.8%.
The Reserve Bank of India (RBI) had maintained a policy of tight inter-bank call rate in recent months, a strategy influenced by the government's cautious spending approach as well as the spike in inflation, which reached 7.8% in July and August, primarily driven by the surge in tomato prices.
However, the economic landscape started shifting in November and December, when inflation fell below the RBI’s forecast. This, coupled with increased government spending on activities such as month-end salary payments, contributed to a noticeable drop in the inter-bank call rate, culminating in the breach of the 6.5% threshold on Monday.
The decline in the inter-bank call rate serves as an indicator that the RBI is now more comfortable with the prevailing economic conditions and that inflation is no longer perceived as a severe concern by the RBI.
Market observers are now speculating that this decline in the call rate could pave the way for a shift in the RBI's monetary policy stance. There is growing anticipation that the central bank might consider adopting a more dovish approach in the upcoming monetary policy decisions.
(Edited by : Ajay Vaishnav)
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