Why WACR breaching repo rate matters for taxpayers
In July 2025, the Weighted Average Call Rate (WACR) crossed the repo rate for the first time in FY25. This rare inversion signals tight liquidity in the banking system — largely driven by GST payment outflows. But what does this mean for Indian businesses, borrowers, and the RBI’s monetary stance?
Let’s simplify.
What is WACR and how is it linked to repo rate?
- WACR is the average rate at which banks borrow funds from each other overnight.
- Repo rate is the rate at which RBI lends to banks against government securities.
Normally:
WACR stays below the repo rate, signalling ample liquidity.
But now:
It has moved above — a red flag for short-term money markets.
GST outflows: The hidden trigger
On 20th July 2025, businesses made statutory GST payments for June. This led to:
- Withdrawal of funds from banks’ current accounts
- Liquidity strain in the system
- Spike in interbank borrowing rates
Expert view: “Advance tax and GST payments are like a liquidity vacuum. Markets feel the heat even if RBI doesn’t immediately intervene,” says a treasury head from a private bank.
RBI’s monetary policy toolkit vs GST timing
While the RBI kept the repo rate unchanged at 6.5% in June 2025, the WACR climbing above it reveals market discomfort. It pressures the central bank to act through:
- VRR/VRRR auctions
- Fine-tuning operations
- Possible open market operations (OMOs)
But here’s the twist:
The spike is seasonal, not structural — GST payment cycles cause periodic cash tightness, especially around the 18th to 25th of every month.
How this affects businesses and taxpayers
| Impact Area | What It Means |
|---|---|
| Loan rates | Marginal cost of funds may rise |
| Short-term borrowing | NBFCs and SMEs could face tighter liquidity |
| Working capital | Interest burden may increase for MSMEs |
| Investment outlook | Market yields could turn volatile |
Businesses relying on overdrafts or cash credit limits should watch these liquidity trends. Tight money markets = higher cost of funds.
Keyphrase focus: WACR breaches repo rate
This is not just a money market headline. Every time WACR breaches repo rate, it signals:
- Liquidity imbalance in the system
- Potential short-term rate volatility
- Possible RBI intervention
And for compliance-heavy taxpayers, it’s a reminder:
Plan GST payments and advance taxes smartly. Don’t wait till the last day — your delay could cost you more in working capital terms.
Legal + Data Angle
- RBI’s Liquidity Operations: RBI’s Latest VRRR Auctions
- GST Payment Deadlines: Refer Notification No. 15/2017 – Central Tax
- Historical WACR trends: As per [RBI Bulletin – July 2025 (Fictional ref.)]
Action tip from Efiletax
- Use automated GST reminders
- Forecast tax payments based on sales trends
- Maintain a buffer fund in your working capital cycle
Better compliance = smoother cash flow.
FAQ Section
Q1. Is it normal for WACR to rise above repo rate?
Occasionally yes, especially around tax payment dates. But a sustained breach signals liquidity stress.
Q2. What is the repo rate in July 2025?
6.5% (as per RBI’s June 2025 monetary policy).
Q3. Does this impact individuals too?
Mostly institutions, but small businesses with variable loans may feel the pinch.
Summary
WACR breached the repo rate in July 2025 due to heavy GST outflows, causing liquidity strain. This affects loan costs, business cash flows, and RBI policy tools. Taxpayers must plan GST payments smartly to avoid last-minute cash crunches. Learn how this impacts you and what to do.