India's banking liquidity surplus hits 4.5-year high at Rs 7.76 lakh crore

India's banking system liquidity surplus has hit a four-and-a-half-year high of ₹7.76 lakh crore, driven by record forex inflows, which has pushed short-term interest rates significantly lower. The weighted average call rate fell 44 basis points below the repo rate to 4.81%, easing ultra-short tenor rates as surplus widened the most since February 2022. The central bank is managing excess funds through temporary variable rate reverse repo operations. Experts expect liquidity to moderate by the third quarter of FY27 due to festive-season currency leakage, a higher current account deficit, softer government spending, and subdued capital inflows. Open market operations may be needed in Q4 if capital inflows remain weak.