RBI keeps repo rate unchanged at 6.50% but market already got a rate cut 🔻 of 25 bps in the last few days
– While policy rate is at 6.50%, since some months the overnight rate was at 6.75% (near the MSF level). Because since past 4-6 months, banking liquidity was deficit at around INR 2.00-2.25 lac crore, even going upto INR 3.30 lac crore. 💰
– But post budget (1st Feb 2024), liquidity deficit dropped to ~INR 150k crore and overnight rates dropped to SDF level of 6.25%. 📉
– Clearly, below the RBI comfort zone.
– In last few days, RBI conducted 6 VRR (Variable rate reverse repo) auctions to mop-up liquidity from the system to bring overnight rates near to repo rate of 6.50%. 📈
– This signals that RBI is comfortable with overnight rates going above repo rate (upto the MSF level), but not comfortable with rates below the policy rates 🔄
