Call Money Rate

The call money rate is a key interest rate in the Indian banking system that reflects the cost of borrowing funds from the Reserve Bank of India (RBI) by banks. It is typically a short-term borrowing rate and is used to manage liquidity in the banking system.

Key Features:

• Short-Term Loan: Call money is a short-term loan typically for a period of one day to a few months.
• Interbank Lending: Banks borrow funds from each other to meet their liquidity needs.
• RBI Intervention: The RBI can influence the call money rate by adjusting its policy rates.
• Bank Lending: Banks charge a call money rate to borrowers, which is typically higher than the RBI’s rate.
• Impact on Other Interest Rates: The call money rate has a direct impact on other interest rates in the market, such as commercial loans and home loans.

Purpose:

• Liquidity Management: The call money rate helps banks manage their liquidity by regulating the flow of funds between banks.
• Control Inflation: By influencing the call money rate, the RBI can control inflation.
• Interest Rate Equilibrium: The call money rate helps maintain equilibrium between interest rates in the market.

Recent Developments:

In recent years, the call money rate has been subject to significant fluctuations due to factors such as economic growth, inflation, and global market conditions. The RBI has been actively managing the call money rate to maintain stability and control inflation.

Impact on the Economy:

The call money rate has a significant impact on the overall economy by influencing consumer and business borrowing behavior, economic growth, and inflation.

Additional Notes:

• The call money rate is also known as the Overnight Reverse Repo Rate (NRRR).
• The call money rate is typically quoted in percentage points.
• The call money rate is a key indicator of the overall health of the banking system.