Weighted Average Call Money Rate (WACR)

The Weighted Average Call Money Rate (WACR) is the principal operating target of the Reserve Bank of India's monetary policy framework, representing the volume-weighted average of interest rates at which banks lend and borrow uncollateralised funds from one another on an overnight basis in the call money market. Its elevation to operating-target status derives from the recommendations of the Expert Committee to Revise and Strengthen the Monetary Policy Framework, chaired by Urjit Patel, whose January 2014 report formally proposed that the RBI steer the WACR close to the policy repo rate. This was institutionalised through the Monetary Policy Framework Agreement signed between the Government of India and the RBI on 20 February 2015, and subsequently embedded in the statutory framework created by amendments to the Reserve Bank of India Act, 1934 (notably the insertion of Section 45ZA and the constitution of the Monetary Policy Committee in 2016). The call money market itself is the segment of the money market governed by RBI directions where participation is restricted to scheduled commercial banks, cooperative banks, and primary dealers.

Procedurally, the WACR is computed and disseminated each business day from transactions reported on the Negotiated Dealing System–Call (NDS-CALL) platform, the electronic screen-based dealing system operated by Clearcorp Dealing Systems for the call, notice, and term money segments. The rate is a volume-weighted average: each trade's interest rate is weighted by the principal amount transacted, so that a large-ticket deal influences the published figure proportionately more than a small one. Because the instrument is overnight and uncollateralised, the WACR reflects the marginal cost of reserves for banks managing their daily liquidity positions, including their obligation to maintain the Cash Reserve Ratio. The RBI's stated operational objective is to keep the WACR aligned with the repo rate, the rate at which it lends to banks against government securities under the Liquidity Adjustment Facility (LAF).

The architecture that disciplines the WACR is the LAF corridor. The repo rate sits at the centre; the Standing Deposit Facility (SDF) rate forms the floor and the Marginal Standing Facility (MSF) rate the ceiling. Since the introduction of the SDF in April 2022, the corridor has been symmetric, with the SDF set 25 basis points below the repo rate and the MSF 25 basis points above, giving a 50-basis-point band. In principle no bank would lend overnight below the SDF rate (since it could instead park funds with the RBI) nor borrow above the MSF rate (since it could borrow from the RBI), so the WACR is arbitraged within the corridor. When systemic liquidity is in surplus, the WACR tends toward the floor; when in deficit, toward the ceiling. The RBI conducts variable rate repo and reverse repo auctions of differing tenors to nudge the WACR back toward the repo rate, an exercise sometimes described as fine-tuning liquidity management.

Contemporary practice illustrates the target's sensitivity. Through much of 2020 and 2021, in the wake of the COVID-19 pandemic and the RBI's extraordinary liquidity infusions, the WACR frequently drifted below the repo rate and hugged the reverse repo floor, prompting commentary from Mint Street and the Department of Economic Affairs about the effective stance of policy being more accommodative than the headline repo rate implied. After the February 2023 and subsequent Monetary Policy Committee decisions held the repo rate at 6.50 per cent, the WACR repeatedly traded near or above the repo rate as liquidity tightened, leading Governor Shaktikanta Das to emphasise in successive monetary policy statements that the WACR, not the reverse repo or any other rate, remained the operating target the central bank sought to align with the policy rate.

The WACR must be distinguished from several adjacent rates. It is not the repo rate, which is an administered policy rate set by the MPC; the WACR is a market-determined outcome the RBI attempts to steer toward that policy rate. It differs from the Mumbai Interbank Offered Rate (MIBOR), a benchmark reference rate now administered by Financial Benchmarks India Pvt Ltd (FBIL) and derived from call money transactions, used for pricing derivatives and floating-rate instruments rather than as a policy instrument. It is also distinct from the Treasury bill rate, the collateralised TREP/CBLO repo rate, and the marginal cost of funds-based lending rate (MCLR) that banks use to price retail loans. The defining attributes of the WACR are that it is overnight, uncollateralised, interbank, and volume-weighted.

Edge cases and controversies persist. Critics within the policy-research community have observed that the call money segment has shrunk in volume relative to the collateralised TREP market, raising questions about whether an uncollateralised overnight rate transacted by a narrowing set of participants remains the most representative operating target; some analysts have advocated migrating toward a secured overnight benchmark. Episodes of extreme liquidity surplus, when the WACR fell below even the floor of the corridor, exposed the limits of the framework before the SDF replaced the fixed-rate reverse repo as a more reliable floor in 2022. The transition away from LIBOR globally has further focused attention on the integrity and governance of domestic overnight benchmarks.

For the working practitioner, the WACR is the single most informative daily signal of whether the RBI's monetary stance is being transmitted to the money market. A desk officer, journalist, or analyst tracking the spread between the WACR and the repo rate can infer, in near real time, the prevailing liquidity condition and the effective tightness or accommodation of policy, independent of the headline rate announced bi-monthly by the Monetary Policy Committee. For candidates preparing the UPSC General Studies Paper III economy syllabus, the WACR exemplifies the distinction between policy rates and operating targets and the mechanics of the LAF corridor.