Central spending gives a boost to liquidity, brings overnight rate 10 bps below repo

Following recent elections, increased government spending has injected liquidity into India's banking system, resulting in lower overnight borrowing rates, Treasury Bill yields, and short-term financing costs for Indian companies. Despite these developments, the Reserve Bank of India (RBI) appears cautious about reducing policy rates. The overnight weighted average call rate (WACR), which hovered above the RBI's repo rate of 6.50% in May and June, has averaged 6.39% in July, indicating a surplus liquidity situation.