Short-term interest rates increase 25-30 basis points, shows data

Interest rates have inched up in the economy, notwithstanding the status quo in the monetary policy and continuation of the accommodative stance.

The reason why short-term rates have spiked is liquidity normalisation. The central bank on Friday removed Rs 2 trillion from the banking system through a 14-day reverse repo auction. Before the money gets reversed, the central bank can do another auction and continue to remove as much liquidity as it wants. The intention would be to push up short-term rates towards the reverse repo rate at least, and, when the economy normalises, towards the repo rate.

Rates have inched up