Why RBI’s Call Money Benchmark Is Losing Relevance 

More than a decade after designating the weighted average call rate as its operating target, the Reserve Bank of India is confronting a stark reality. The very market it relies on for this signal has steadily lost relevance. As volumes in the uncollateralised call money market shrink, the effectiveness of WACR as a monetary policy anchor is increasingly in doubt.

When RBI formally adopted WACR as the operating target in May 2011, the interbank call money market was relatively vibrant. Over time, market preference has shifted decisively towards collateralised overnight instruments such as triparty repo and market repo. This change reflects regulatory reforms, credit risk management and broader participation. Between 2014–15 and 2024–25, annual turnover in the overnight market grew nearly fivefold to ₹1,296.62 trillion. Meanwhile, call market volumes fell from ₹36.10 trillion to ₹27.42 trillion. The call market’s share of overnight volumes collapsed to just 2% from 13% a decade ago.

This structural shift reveals a fundamental flaw in RBI’s framework. Anchoring policy to a shrinking, thinly-traded market risks distorting signals. The call money market still works as a last-resort liquidity source, but its access remains limited to banks and primary dealers. In contrast, collateralised segments include mutual funds, insurance firms and corporates, making them both more representative and liquid.

The secured market’s growth has raised an important policy question: should RBI switch from WACR to a secured benchmark like the Secured Overnight Rupee Rate? RBI itself acknowledged this challenge, setting up a committee in 2022 that recommended developing SORR, derived from markets like basket repo and TREPS. While RBI has proposed developing SORR, it has yet to deliver a clear roadmap for adoption.

However, the debate is nuanced. ICICI Securities Primary Dealership notes in a recent report that central banks typically target the overnight uncollateralised interbank rate because it reflects pure reserve pricing under central bank control.

Indeed, ICICI Securities PD argues that RBI should continue targeting WACR but can also indicate that the TREPS rate and the basket repo rate will serve as supplementary targets. Or it can publish a WAOR that consists of WACR, weighted average TREPS rate and basket repo rate. This blended approach would capture the diversity of India’s overnight markets while maintaining RBI’s control over the interbank reserve price.

Recent efforts to boost call market activity, such as extending trading hours, have failed to reverse the decline. Without structural reforms, like broadening participation to new lenders, call market volumes will remain subdued. The RBI is unlikely to open up the call market for others. 

Relying solely on WACR risks anchoring policy to a fading benchmark.

This has consequences for monetary transmission. While WACR and the policy repo rate do influence each other, the pass-through to lending and deposit rates remains slow. The call rate’s limited responsiveness and narrow participant base weaken its ability to transmit policy signals across the economy. By contrast, secured markets with greater depth and diverse participation offer stronger channels for transmission, especially when controlling inflation or supporting growth.

RBI’s upcoming liquidity framework review offers an opportunity to address these challenges. 

In a financial system now dominated by secured lending and diverse participants, clinging only to WACR is like steering a modern ship with an outdated compass. RBI must chart a new, more representative course before policy signals get lost in a vanishing market.