Liquidity Position and Call Money Rate

Liquidity Position and Call Money Rate

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The Call Money Market (CMM) is the Market where short-term (at some point) credits are traded by banks to meet liquidity. Banks that try to profit liquidity moves toward the Call Market as borrowers and the ones who have overabundance liquidity take part there as loan specialists. The CMM is available Monday through Friday. Banks can attain CMM to fulfill their CRR & SLR prerequisites or to cover or, insure against an unanticipated impediment within real money on a particular day. The Call Money Market is, in essence, the primary market-oriented mechanism that banks use to meet their liquidity needs.

What exactly is the Money Market? - Typically, the Call Money is available for one day. Through the notice market, the bank can obtain Money if it requires funds for additional days. The loan is available from two to fourteen days here.

Participants in the Call Money Market - The RBI specifies banks and related entities as participants in the Call Money Market. Participation in the Call/notice Money Market as both borrowers and lenders is permitted for scheduled commercial banks (with the exception of RRBs), co-operative banks (with the exception of Land Development Banks), and primary dealers (PDs). Payment banks are now permitted to participate in CMM as both lenders and borrowers under the new rules. Banks are the predominant members in the CMM and consequently it is frequently known as interbank Call Currency Market. Other banks will receive loans from surplus banks. It will be purchased by deficit banks in need of funds.

The Call Money Market's Operation - Loans are obtained through auction or negotiation. The interest rate determines the auction. The loan is available to the highest bidder, who must be willing to pay a higher interest rate. The Called Call rate is the Call Market's average interest rate. The Negotiated Trading System (NDS) electronic trading platform is used to transact in call money. The RBI's assessment of the economy's liquidity relies heavily on this Call Money rate. The CMM is commonly regarded as the financial system's most delicate component.

The Call Money rate provides information about the economy's overall liquidity because the participants are banks. A higher Call rate indicates economic liquidity stress. Through its monetary policy instruments, the RBI may implement liquidity support measures in this scenario, such as reducing CRR or permitting additional repos. Thus, the Call Cash rate is taken as the working objective of money related strategy.