On Friday, the 3-month CD rate for top public sector banks fell

Why in news

The 3-month Certificate of Deposit (CD) rates for public sector banks fell while 1-year rates rose, reflecting shifts in short-term and long-term liquidity dynamics.

Background

The 3-month CD rate fell to 6.40% from 6.80%, while the 1-year rate rose to 7.30%. Banking system liquidity surged from ₹1.07 lakh crore in July to ₹3.41 lakh crore in August.

Facts for Prelims

• Fact3-month CD rate for top public sector banks: 6.40% as of the report date.
• FactBanking system liquidity in August: ₹3.41 lakh crore.
• FactWeighted Average Call Rate (WACR): 5.25% (below the repo rate).
• S&TVRRR: Variable Rate Reverse Repo is a tool used by RBI to absorb excess liquidity.
• FactRBI's concessional swap facility attracted $72.85 billion in foreign currency inflows as of August 21.

For Mains

Q. Analyze the impact of fluctuating short-term and long-term interest rates on the liquidity management of public sector banks and the broader economy.

Dimensions to cover in your answer

• liquidity management
• impact on borrowing costs
• monetary policy transmission
• influence of MPC signals

Keywords: liquidity management · monetary policy · Certificate of Deposit · interest rate volatility · repo rate

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