Overnight rates shoot past RBI repo corridor on low liquidity

The overnight call money rates in India surged above the Reserve Bank of India’s repo rate, indicating a shortage of funds among banks. The weighted average call rate closed higher than both the Marginal Standing Facility rate and the prevailing repo rate. The increase in money market rates is due to a decline in surplus liquidity in the banking system. The hardening rates have led to an increase in the cost of funds in the banking system and the broader economy. Advance tax outflows are a major factor behind this movement.