The Reserve Bank of India has recently flagged a troubling trend ~ rising asymmetries in the shortterm money market rates that threaten the effectiveness of monetary policy transmission. In plain terms, the central bank is pumping liquidity into the system and adjusting policy rates to guide economic momentum, but the signals are getting lost in transmission. This disconnect between intent and impact could have ripple effects on credit flow, inflation management, and overall economic confidence.

At the heart of the concern is the call money rate ~ an overnight interest rate that reflects the cost of very short-term funds in the banking system. Alongside this are the market repo and TREPS (tri-party repo) rates, all critical to the smooth functioning of India’s money markets. Ideally, these rates should move in tandem with RBI’s policy direction. When they do not, it creates uncertainty and undermines the central bank’s ability to........

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