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News18
a day ago
- Business
- News18
RBIs panel for continuation of WACR as operating target of monetary policy
Last Updated: Mumbai, Aug 6 (PTI) An RBI internal group has recommended continuation of overnight Weighted Average Call Rate (WACR) as the operating target of monetary policy. The group has also recommended to continue with the variable rate auction mechanism for repo and reverse repo operations of various tenors with the objective of maintaining the operating target rate at the policy rate. Report of the Internal Working Group (IWG) to review the extant Liquidity Management Framework, which has been in operation since February 2020, has been published on the RBI's website for stakeholders' comments till August 29. The 7-member IWG was headed by Deputy Governor Poonam Gupta. Under the existing Liquidity Management Framework (LMF), the WACR is the operating target of monetary policy. The objective of liquidity management operations is to align the target rate to the policy repo rate. 'The group recommends continuation of overnight Weighted Average Call Rate as the operating target. The Reserve Bank may, however, continue to keep track of rates in other overnight segments to ensure orderly evolution of money market rates and smoothen transmission," the report said. An effective LMF facilitates the maintenance of appropriate liquidity in the banking system and fosters money market development, the report said. Earlier in the day, Governor Sanjay Malhotra said the WACR is found to be highly correlated with other overnight money market rates (TREPS and Market Repo) in the collateralised segments. Further, WACR is also found to be effective in transmitting signals to other money market instruments across maturities, he said. The internal group has also suggested continuation of the existing corridor system with policy repo rate at the middle of the corridor. 'The corridor would remain symmetric, with SDF rate and MSF rate, which are 25 basis points away from the policy repo rate, acting as the lower and upper bounds of the corridor, respectively," the report said. The LAF under the current LMF is based on the corridor system, with the policy repo rate in the middle of the corridor, the Marginal Standing Facility (MSF) rate (25 basis points above the policy repo rate) as the ceiling and the Standing Deposit Facility (SDF) rate (25 basis points below the policy repo rate) as the floor. Further, to reduce uncertainty in the market about the tenor, quantum and timing of the repo/reverse repo operations, the group felt that it is desirable for the Reserve Bank to provide sufficient advance notice to market participants, at least by one day, while conducting any such liquidity operation. The panel noted that the set of instruments in the extant LMF, viz., Open Market Operations (OMOs), long-term VRR/VRRR operations and Foreign Exchange (FX) swap auctions, are sufficient for managing durable liquidity in the system and hence does not recommend any change at this stage. It also recommended the central bank to retain the extant daily minimum requirement of 90 per cent of the prescribed Cash Reserve Ratio (CRR). PTI NKD ANU view comments First Published: Disclaimer: Comments reflect users' views, not News18's. Please keep discussions respectful and constructive. Abusive, defamatory, or illegal comments will be removed. News18 may disable any comment at its discretion. By posting, you agree to our Terms of Use and Privacy Policy.
Express Tribune
19-07-2025
- Business
- Express Tribune
REER improves to 96.6 in June
Listen to article The Real Effective Exchange Rate (REER) index for the Pakistani rupee improved to 96.6 in June 2025, down from 97.8 in May 2025, according to data released by the State Bank of Pakistan (SBP). The drop in REER suggests improved external competitiveness for the rupee. The rupee also appreciated slightly against the US dollar on Friday, gaining 0.04% in the interbank market. It closed at 284.87, up by 10 paisas from Thursday's closing rate of 284.97. In parallel, the SBP injected Rs11.05 trillion into the banking system through Open Market Operations (OMOs) on Friday, using both conventional and Shariah-compliant instruments. The bulk came through the conventional reverse repo OMO, with Rs11.371 trillion accepted. Most of this was in the 14-day tenor (Rs11.2 trillion at 11.03%), and a smaller portion in a 7-day tranche (Rs171.1 billion at 11.09%). Under the Shariah-compliant Mudarabah-based OMO, Rs115.5 billion was accepted, split between 7-day (Rs100 billion at 11.11%) and 14-day (Rs15.5 billion at 11.13%) tenors. These operations reflect SBP's focus on short-term liquidity management. Rates ranged from 11.03% to 11.13%, suggesting stable interbank market conditions. The pro-rata acceptance in some tenors points to selective liquidity control to balance market needs. Analysts view the scale of the injection as a sign of adequate banking liquidity. The slightly lower OMO rates may signal a shift towards monetary easing. Meanwhile, the APGJSA, said the price of gold per tola rose by Rs2,500 to Rs357,600 on Friday. The price of 10 grams increased by Rs2,143 to Rs306,584. A weaker US dollar and geopolitical uncertainty boosted gold's appeal as a safe-haven asset. Platinum prices, however, retreated after recently hitting a decade high.
Time of India
16-07-2025
- Business
- Time of India
Fixed income market outlook: why short-term bonds may outperform in 2H 2025
Tired of too many ads? Remove Ads Geopolitical unrest pushes investors toward bonds Key macro trends shaping Indian bond markets Surplus banking liquidity: Softening inflation: Tired of too many ads? Remove Ads Mixed economic data: Currency stability: Limited upside seen in long bonds Why short-term corporate bonds look attractive Surplus system liquidity and subdued credit growth favor short-end corporate bonds. A shallow rate cut cycle and limited OMO (Open Market Operations) purchases further restrict long-duration bond rallies. Corporate bonds with maturities of 1 to 5 years are expected to outperform long bonds from a risk-reward standpoint. AAA-rated corporate bonds maturing within 3 to 10 years are likely to offer yields between 6.50% and 6.75%, providing incremental gains of 50–100 basis points. Global factors at play Investment strategy: Focus on short to medium duration Maintaining allocations to short- to medium-term bond funds. Gradually adding duration during yield spikes. Favoring government securities (G-Secs) in long-term portfolios while increasing exposure to 1–5-year corporate bonds for better near-term returns. What should investors do? In a world grappling with geopolitical uncertainties and changing interest rate dynamics, India's bond market stands at a crucial to the Fixed Income Market Outlook (July 2025) report by Axis Mutual Fund , abundant liquidity, falling inflation , and a shallow rate cut cycle are shaping a nuanced bond market strategy for the months geopolitical tensions between Israel and Iran have driven global investors towards safer assets like bonds and gold. In the US, 10-year Treasury yields slipped by 17 basis points to 4.23%. Meanwhile, Indian 10-year government bond yields inched up by 3 basis points to settle at 6.32%, largely due to abundant banking liquidity and moderating inflation Reserve Bank of India (RBI) conducted a ₹84,975 crore VRRR (Variable Rate Reverse Repo) auction to manage excess liquidity. Overnight rates are currently trading below the Standing Deposit Facility (SDF), prompting the central bank to maintain short-term policy headline inflation fell to 2.8% in May 2025, thanks to easing food prices and an expected above-normal monsoon. Analysts expect inflation to stay around or below 3% in the near production slowed to 1.2% in May, with the mining and electricity sectors dragging overall growth. However, India posted a robust current account surplus of 1.3% of GDP in Q4FY25—the strongest in over 15 years—driven by resilient service exports and front-loaded goods shipments ahead of US rupee remained broadly stable against the US dollar, as the greenback weakened against most major bond markets have benefited from a strong rally over the past 12 months, analysts now expect the upside to be limited, particularly for long-duration government bonds. With much of the rate-cut-driven rally already priced in (10-year yields have already fallen by 70–75 bps over the last year), experts predict that yields will likely remain range-bound between 6% and 6.40% for 10-year G-Secs in the coming report emphasizes a clear tactical shift towards short-duration bonds. Several factors support this view:Globally, while tariff uncertainties between the US and its trading partners are easing, negotiations remain ongoing. The US Federal Reserve is expected to resume its rate-cutting cycle soon, with two cuts likely in 2025 as growth slows and labor market data weakens. However, the Fed's cautious approach keeps markets the current environment, investment experts recommend:With the bulk of the bond rally behind us, the report advises investors to focus on short-term corporate bond funds and tactical gilt funds. Selective credits also remain attractive due to improving macro fundamentals and corporate short, the fixed-income space continues to offer opportunities—but disciplined portfolio allocation, duration management, and selective sector exposure will be critical for capturing returns in 2H 2025.(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
Express Tribune
16-07-2025
- Business
- Express Tribune
Lending to govt hits record high
The decline in ADR highlights banks' reluctance to lend aggressively, due to concerns about borrower creditworthiness, regulatory constraints or a lack of demand from the private sector. photo: file Listen to article At first glance, Pakistan's economy appears to be on the path to recovery, macro indicators are stabilising, and optimism is cautiously returning. But a closer look reveals that many of the country's deep-rooted structural problems remain unresolved. One such issue is the Investment-to-Deposit Ratio (IDR), which has now reached an all-time high of 103%, even exceeding total deposits. This means that banks are channelling the bulk of their deposits into government securities, effectively crowding out the private sector, the true engine of sustainable economic growth. While this trend may bolster short-term bank profitability and fiscal financing, it raises serious concerns about the long-term health of the real economy, which depends on private sector credit to drive investment, innovation, and job creation. Pakistan is bound by restrictions imposed by the International Monetary Fund (IMF), which prohibits the government from directly borrowing from the State Bank of Pakistan (SBP) through money printing. This measure is aimed at curbing unchecked monetary expansion, which fuels inflation and undermines economic stability. In response, the government machinery, including the State Bank of Pakistan (SBP), has resorted to injecting massive liquidity into private banks through Open Market Operations (OMOs), recently reaching an unprecedented Rs14 trillion. This level of intervention is extraordinary, especially when compared to peer economies. The injected funds are then funnelled into government securities, creating a self-serving loop: banks earn risk-free profits by lending to the government, while the government avoids borrowing directly from the SBP. This cycle not only enriches a few without exposing them to market risks but also starves the real economy of credit, depriving millions of people and businesses of the economic opportunities they desperately need. "As of June 2025, the Investment-to-Deposit Ratio (IDR) reached 103%, up 608bps YoY, indicating that banks have invested more than their total deposits — highlighting a tilt towards government papers rather than private sector lending," noted Deputy Head of Trading at Arif Habib Ltd, Ali Najib. This means that banks have now invested more than their total deposits, a clear indication that they are increasingly favouring risk-free government securities over lending to the private sector. The trend underscores a cautious stance amid ongoing economic uncertainty. During the same period, total deposits rose by 14.1% year-on-year to Rs35.5 trillion, while bank investments surged by 21.2% to Rs36.6 trillion. In contrast, advances increased by only 8.7%, reaching Rs13.5 trillion, indicating a slower pace of credit expansion. This divergence in growth has led to a decline in the Advance-to-Deposit Ratio (ADR) to 38.1%, down from 40.0% a year earlier and 39.8% in May 2025. The decline in ADR highlights banks' reluctance to lend aggressively, partly due to concerns about borrower creditworthiness, regulatory constraints, or a lack of demand from the private sector — but mainly due to the fact that when there is a safe avenue, why would anybody take the risk? Looking ahead, the banking sector is expected to remain stable, according to AHL, supported by rising deposit inflows and strong earnings from government-backed investments. However, the continued preference for investment over lending could constrain private sector growth and job creation, unless broader macroeconomic stability and investor confidence are restored. Experts suggest that the central bank and policymakers may need to revisit regulatory and fiscal measures to encourage more balanced credit allocation across the economy.
Express Tribune
05-07-2025
- Business
- Express Tribune
SBP injects Rs13tr into banking system via OMOs
Listen to article The State Bank of Pakistan (SBP) injected a total of Rs13 trillion into the banking system through conventional and Shariah-compliant Open Market Operations (OMOs) on July 4, 2025, in a move aimed at maintaining short-term liquidity. According to official data, the conventional OMO injection amounted to Rs12.647 trillion, accepted at a return rate of 11.03%, with most of the liquidity injected via 14-day tenor instruments. In parallel, the central bank conducted a Shariah-compliant Mudarabah-based OMO, injecting an additional Rs361.6 billion through 7-day and 14-day instruments at return rates of 11.11% and 11.10%, respectively. This large-scale liquidity operation reflects massive rupee circulation and an inflationary environment that erodes public buying power. Meanwhile, the Pakistani rupee posted a slight decline against the US dollar in the interbank market on Friday, slipping by 0.04%. By the day's close, the local currency was quoted at 283.97, down by 11 paisas from the previous session's closing rate of 283.86. Moreover, gold prices in Pakistan declined on Friday, primarily due to subdued local demand amid Ashura-related closures, even as international bullion markets witnessed a rebound driven by a softer US dollar and renewed safe-haven inflows ahead of potential trade policy moves by former US President Donald Trump. According to data released by the All-Pakistan Gems and Jewellers Sarafa Association (APGJSA), the price of gold per tola dropped by Rs1,500, settling at Rs355,500. Similarly, the rate for 10 grams of gold fell by Rs1,286 to Rs304,783. The dip in domestic prices contrasts with gains earlier in the week. On Tuesday, gold had risen by Rs800 per tola, reaching Rs357,000. Adnan Agar, Director at Interactive Commodities, explained that global market activity remained subdued due to a bank holiday in the United States. 'The market is relatively inactive today, with gold trading between $3,325 and $3,344 per ounce. Current levels are hovering around $3,332,' he noted. Agar added that volatility is expected to return next week when markets reopen, particularly as attention turns to the US president's reinstatement of trade tariffs.
