RBI governor urges banks to boost call money market trading

Reserve Bank of India (RBI) Governor Sanjay Malhotra has urged banks to participate in the overnight call money market, instead of passively parking funds with the central bank.

"We urge the banks to actively trade among themselves in the uncollateratised call money market to make it deeper and vibrant for better signal extraction from the weighted average call money rate (WACR)," Malhotra said in his maiden monetary policy statement.

The central bank uses the interest rate range at the overnight call money market rate, measured by WACR, as the operating target, for monetary policy making. It looks to anchor the operating target to the policy repo rate to achieve the objectives of monetary policy.


RBI has observed that some banks are reluctant to on-lend in the uncollateratised call money market. "Instead, they are passively parking funds with the Reserve Bank," the governor said.

The weighted average call rate (WACR) averaged 6.77% in January, rose from 6.71% in December, as a reflection of tighter liquidity situation.

"The governor has exhorted banks to be more active in call money market for better transmission of monetary policy signals," said Canara Bank chief economist Madhavankutty G.

The Governor's statement could be also aimed at encouoraging higher liquidity flow in the inter-bank system. If banks with comfortable liquidity position lends in the overnight market, this wouold only improve the functioning of the market.

"Bigger banks were already told to lend in the market to improve liquidity. Now the Governor himself saying it would encourage banks to do it more," a senior market participant said.