The banking system is facing a huge liquidity deficit, which at the last count was estimated at about ₹2 lakh crore on January 9^th, in the wake of RBI’s intervention in the foreign exchange market to prevent sharp depreciation of the Rupee and lacklustre government spending, say market experts.

The liquidity deficit had its impact on call money rates, which traded above the repo rate of 6.50 per cent. The weighted average rate (WAR) in the call money market increased to 6.88 per cent on Friday against previous day’s 6.83 per cent.

The systemic liquidity deficit is highlighted by the fact that at the 14-day Variable Rate Repo (VRR) auction held on Friday, the central bank received bids for liquidity injection aggregating ₹2,77,743 crore from banks against the notified amount of Rs 2.25 lakh crore.

The central bank injected liquidity aggregating ₹2,25,006 crore at the weighted average rate (WAR) of 6.55 per cent.

To bolster the banking system’s liquidity further, the RBI also conducted a 4-day VRR for a notified amount of ₹50,000 crore. It received and accepted bids aggregating ₹74,480 crore and ₹50,005 crore, respectively. The WAR at this auction was 6.54 per cent.

“The RBI has been intervening in the market by selling Dollars so that the Rupee’s slide against the greenback is gradual. Due to this the forex reserves have declined.

“It is estimated that liquidity amounting to about ₹3-3.5 lakh crore would have got sucked out because of Dollar sales by RBI,” said an economist with a private sector bank.

Bank of Baroda economists noted that the liquidity deficit is on account of mounting pressure on the Rupee, with RBI intervention in the forex market draining it. However, some correction on system liquidity is likely to be witnessed.

The economists observed that the results of buyback of Government Securities (G-Secs) have been conducive and also reflect some pruning down of repayment obligation by the centre in FY26, which might be positive for yields.

Apart from this, ₹11,996 crore of GSec (6.89% GS 2025) is scheduled to mature this week, which will also be favourable for liquidity and hence provide further downward support to yields.