Rupee and Reserves
The Indian rupee has experienced a notable decline, partially fueled by waning optimism regarding a potential interest rate cut by the US Federal Reserve
in December. Simultaneously, India's foreign exchange reserves saw a substantial decrease, dropping by $6.93 billion to settle at $695.36 billion. These events reflect the interconnectedness of global monetary policy and its immediate effect on local financial markets. The fluctuations underscore the importance of international financial dynamics on India's economic stability and the Reserve Bank of India's (RBI) measures to manage the situation.
Liquidity and Rates
The RBI's report suggests that the Weighted Average Call Rate (WACR) is now better aligned with the repo rate, which is a positive sign for liquidity management within the banking system. Nevertheless, festival spending and outflows related to the Goods and Services Tax (GST) have pushed banking system liquidity into a deficit. The current lending rate cycle shows that private banks have lowered their lending rates more aggressively compared to public sector banks. These movements indicate the interplay of fiscal measures, market behavior, and monetary policy in shaping the Indian financial sector's efficiency.
Fiscal Situation & Imports
The fiscal deficit for April to September reached ₹5.73 trillion, constituting 36.5% of the fiscal year 2026 estimate. This figure highlights the government's current financial position and its spending patterns. In other news, some Indian companies are obtaining licenses from China to import Rare Earth Minerals (REMs), according to the Ministry of External Affairs (MEA). The RBI has recently rejected bids for 7-year G-secs, partly due to the demand for higher yields. Furthermore, the RBI has repatriated more gold from abroad, a strategic move following the West's freezing of Russia's reserves. This diverse set of activities illustrates the complexities and multifaceted nature of the Indian economy.
