Overnight money market rates registered a notable easing of approximately 0.6 per cent over the last two weeks. The decline was attributed to a marked improvement in liquidity conditions across the banking system, according to data compiled by the Reserve Bank of India (RBI).
The market data provides a clear snapshot of rate compression. Overnight money market rates stood at 4.73 per cent as of April 10. This represents a significant reduction from the 5.34 per cent level recorded on April 2.
Overnight Money Market Rates Soften Amid Surplus Liquidity
The rate compression was visible across various segments of the money market. Within the overnight segment, both Call Money and Triparty Repo Dealing and Settlement (TREPS) rates softened by a margin of 0.03-0.05 per cent.This synchronized softening across key rates directly reflects the improved flow of funds and increased availability of liquidity within the banking sector.
G-Sec Maturities Fuel Liquidity Surplus
The primary catalyst for the rate decline was the substantial increase in system liquidity. This surplus was largely driven by the maturity cycles of government securities (G-Secs).Specific maturities included G-Secs worth Rs 31,329 crore maturing on April 8. Following this, a large tranche of Rs 86,403 crore matured on April 12. Furthermore, banks are set to receive another Rs 34,791 crore in maturities on April 17.
As a result of these significant maturities, RBI data estimated that the system liquidity remained in a surplus of approximately Rs 5.55 lakh crore as on April 10.
RBI Proactive Management Absorbs Excess Funds
To maintain stability and absorb this excess liquidity, the central bank took definitive action. On April 10, the RBI conducted variable rate reverse repo (VRRR) auctions, totalizing Rs 2 lakh crore.Addressing the market, RBI Governor Sanjay Malhotra highlighted the central bank’s commitment to proactive management. He stated that the RBI will continue to be pre-emptive in liquidity management, ensuring sufficient funds are available for the productive requirements of the economy.
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