Mumbai: The liquidity surplus in India's banking system has surged to its highest in more than four-and-a-half years to ₹7.76 lakh crore, central bank data showed, as lenders garnered a record $127 billion in dedicated forex-inflow programs.The weighted average call rate (WACR), unsurprisingly, fell 44 basis points below the repo rate to 4.81%, easing rates in the ultra-short tenor category, as liquidity surplus widened the most since February 2022.This liquidity surplus is expected to moderate by the third quarter of FY27 as seasonal factors drain funds from the banking system.
For now, the central bank is managing the excess liquidity through temporary variable rate reverse repo (VRRR) operations, largely of shorter tenures.
I expect system liquidity to moderate from 3QFY27 amid festive-season currency leakage, a higher current account deficit, softer government spending, and subdued capital inflows, said Soumyajit Niyogi, director at India Ratings.Read more: 'Revolver' misfire hits credit card issuers: India's credit card boom sees lower bank profitsNiyogi does not rule out the possibility of open market operations (OMOs) in Q4 when liquidity is expected to moderate or even be at a deficit.
