Vidyasagar University Journal of Commerce

Vol. 20, 2015/ISSN 0973-5917

IMPACT OF MACRO ECONOMIC VARIABLES

ON CALL MONEY MARKET RATE IN INDIA
Anjala Kalsie*

Abstract
The objective of the paper is to study the impact of Wholesale Price Index
(WPI), Index of Industrial Production (IIP), Oil price, Gold price, Balance
of Trade (BOT), Foreign investments in India (FII in Equity), Purchasing
Manager Index (PMI), Money Supply and USDINR currency prices on
Call Money Market. Another objective is to build a predictive model using
regression techniques based on these macroeconomic indicators. The analy-
sis has been carried out based on the monthly time series data for the
period April 2005 to December 2013.
The results of granger causality shows that Money Supply causes move-
ments in Call Money Market rate. Based on regression model it was deter-
mined that USDINR exchange rate, Balance of Trade, Brent Crude Oil
Prices and Gold Price impacts monthly call rate. The paper concludes that
more than 90% of the movements in call money rate can be explained by
modelling the key economic factors through VAR.
Key words: Call Money Market, Macro Economic Variables, Forecasting,
VAR, Causality Test.

1. Introduction
The call/notice/term money market is a market for trading very short term liquid financial
assets that are readily convertible into cash at low cost. The money market primarily facilitates
lending and borrowing of funds between banks and entities like Primary Dealers. An institution
which has surplus funds may lend them on an uncollateralized basis to an institution which is
short of funds. The period of lending may be for a period of 1 day which is known as call
money and between 2 days and 14 days which is known as notice money. Term money refers
to borrowing/lending of funds for a period exceeding 14 days.
This market is governed by the Reserve Bank of India which issues guidelines for the various
participants in the call/notice money market. The entities permitted to participate both as
lender and borrower in the call/notice money market are Scheduled Commercial Banks
(excluding RRBs), Co-operative Banks other than Land Development Banks and Primary
Dealers.
The average daily turnover in the call money market is around Rs. 12,000-16,000 Cr every
day and trading occurs between 9 am to 5 pm on Monday to Friday and 9 am to 2 pm on
*Assistant Professor, Dept. of Management Studies, University of Delhi, E-mail : kalsieanjala@gmail.com
 Kalsie

Saturday. The trades are conducted both on telephone as well as on the NDS Call system,
which is an electronic screen based system set up by the RBI for negotiating money market
deals between entities permitted to operate in the money market. The settlement of money
market deals is by electronic funds transfer on the Real Time Gross Settlement (RTGS) system
operated by the RBI. The repayment of the borrowed money also takes place through the
RTGS system on the due date of repayment.
In India, money and credit situation is subject to seasonal fluctuation every year. The volume
of call money transactions and the amount as well as call rate levels characterize seasonal
fluctuation/volatility. A decrease in the call/notice money requirements is greater in the slack
season (mid-April to mid-October) than in the buy season (mid-October to mid-April).
Conventionally call money market rate depends upon certain factors such as Liquidity
conditions, Reserve requirement A cut in CRR reduces call rates while an increase in CRR
increases call rates. Structural factors such as government legislation, conditions of the stock
markets and so on which affect the volatility of the call money rate and Liquidity changes and
gaps in the foreign exchange market.
The present paper is attempt to explain that call money rate besides the traditional factors also
governed by macroeconomic factors such as Wholesale Price Index (WPI), Index of Industrial
Production (IIP), Oil price, Gold price, Balance of Trade (BOT), Foreign investments in
India (FII in Equity), Purchasing Manager Index (PMI), Money Supply and USDINR currency
prices.
The paper is divided into following sections section 2 is about the Literature Review, section
3 is about Objective and Methodology, section 4 talks about Analysis and Interpretation and
section 5 finally concludes.
2. Literature review
Regardless of the argument that federal funds rate and T-bill rate move together because they
are linked as the expectations hypothesis holds there is a strong evidence of a co-integrating
relationship between the federal funds rate and the T-bill rate (Sarno and Thornton, 2002).
The higher spreads between the two-week market rate and the official repo rate result in
lower money market volatility and rate dynamics at the short end of the money market curve,
and hence, the effects at the longer end are much weaker (Wetherilt, 2002). In the Italian
interbank market, largest increase in volatility and the most notable variations of its intraday
pattern occur at the last working day of reserve maintenance period and at the end of each
quarter. Furthermore, the overnight interest rate volatility is not influenced by trading volume.
This finding by Palombini (2003) indicates the difference between a financial market, where
interest rate level is determined by information arrival and the market for overnight liquidity,
where the volume of trading is more influenced by institutional factors like the functioning of
the payment system. While the call money rate is tracked reasonably accurately during surplus

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liquidity conditions, the predictive power suffers a loss when liquidity shortage suddenly
emerges. In addition, it argues that introducing a wider range of eligible collateral in the repo
market could help in improving the efficiency of interest rate targeting (Palombini, 2003).
(Parmar,2002)The inter-linkages, which have been studied under a co-integration framework,
suggest the existence of one co-integrating vector among them. Furthermore, this long-term
relation implies that the volatility in one of the markets possibly gets transferred to the other
markets. So, players in these markets keep shifting their funds in the expectation of earning
higher returns and to reduce their exposure to risk. Bhatt and Virmani (2005) talk about cross
border market integration that is between Indian Money Market and USA money market.The
motivation of the paper arises out of capital mobility precipitated by globalization. Here it
needs to be pointed out that the money market deals in short term instruments and is essentially
about liquidity rather than capital funds. Our approach is to observe the Indian Money Market
with respect to domestic market integration especially because short term funds are not likely
to be sought from international markets . There may be an exception to this which is about the
foreign exchange market since banks may need liquidity in foreign exchange. However, the
foreign exchange market is not similar to the short term credit market, in as much as foreign
exchange as an asset is not interest bearing. While in the money market, all other instruments
are fixed interest bearing instruments. The short-term (up to 3 month) money markets in India
are getting progressively integrated with those in the USA even though the degree of integration
is far from perfect. Covered interest parity was found to hold for while uncovered interest
parity fails to hold. (Jain and Bhanumurthy, 2005).
There are various issues related to integration of financial markets in India. Given the growing
movement of capital flows, particularly short-term capital, into the domestic financial markets,
it is necessary to examine this issue so as to reap the positive benefits with having stable
markets. There study found that there is a strong integration of the domestic call money market
with the LIBOR. Though there is a long-term co-movement between domestic foreign exchange
market and LIBOR this may be due to frequent intervention by the Central Bank in the foreign
exchange market. As the Government securities market in India is still in the developing stage,
it was not found to be integrated with the international market. Policy measures (or reforms)
are necessary to increase integration of financial markets. This would help in reducing the
arbitrage advantage in some specific segment of the financial markets. Similarly Porter and Xu
(2012) examine interest rates in China which are composed of a mix of both market-determined
interest rates (interbank rates and bond yields), and regulated interest rates (retail lending and
deposit rates), reflecting China’s gradual process of interest rate liberalization. The movements
in administered interest rates are important determinants of market-determined interbank rates,
in both levels and volatility. The announcement effects of reserve requirement changes also
influence interbank rates, as well as liquidity injections from open market operations in recent
years. Also the regulation of key retail interest rates influences the behaviour of market
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 Kalsie

determined interbank rates, which may have limited their independence as price signals. Further
deposit rate liberalization should allow short-term interbank rates to play a more effective role
as the primary indirect monetary policy tool.
The important link between the federal funds and repo markets, before, during, and emerging
from the financial crisis that began in August 2007 has been evaluated byBech, Klee and
Stebunovs (2011). In particular the initial transmission of monetary policy is closely related
money markets, pricing of risk, and liquidity effects, and then how they interact if the Federal
Reserve removes the substantial amount of liquidity currently in the federal funds market. The
results suggest that pass-through from the federal funds rate to the repo deteriorated somewhat
during the zero lower bound period, likely due to limits to arbitrage and idiosyncratic market
factors. In addition, during the early part of the crisis, the pricing of federal funds, which are
unsecured loans, indicated a marked jump in perceived credit risk. Moreover, the liquidity
effect for the federal funds rate, or the change in the federal funds rate associated with an
exogenous change in reserve balances, weakened greatly with the increase in supply of these
balances over the crisis, implying a non-linear demand for federal funds. They also show
simulations of the dynamic effects and balance sheet mechanics of liquidity draining on the
federal funds and repo rates – a tool that might be used in an exit strategy to tighten monetary
policy.
3. Objective and Methodology
3.1 Objective and Hypothesis:
The objective of the papers is to understand the impact of key macroeconomic variables
namely Wholesale Price Index (WPI), Index of Industrial Production (IIP), Oil price, Gold
price, Balance of Trade (BOT), Foreign investments in India (FII in Equity), Purchasing
Manager Index (PMI), Money Supply and USDINR currency prices on Call Money Market.
The analysis has been carried out based on the monthly time series data gathered from the
website of RBI, SEBI and Bloomberg database for the period January 2009 to December
2013.
Reporting- Lag and Adjustment
Many of the variables included in the study are reported with a time lag. For example, the
monthly WPI data is reported with a time lag of approximately two weeks from the reference
month. This means that the WPI data of the previous month will affect the stock market of the
current month. So while considering the monthly impact of WPI on Nifty, we need to adjust
this by considering a one month lag in the WPI data. Similarly, IIP is reported with a lag of six
weeks, Balance of trade is reported with a time lag of two weeks, and the PMI of the month
is usually released at the start of the next month. Hence the lag of these variables is suitably
adjusted using E-VIEWS.

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Table 1 : Lag Adjustement

Variable Lag Adjustment (in months)
WPI 1
Exchange Rate Nil
IIP 2
Oil Price Nil
Gold Price Nil
Call Money Rate Nil
Balance of Trade 1
FII in Equity Nil
PMI 1
Source : Author’s calculation

3.2 Methodology
3.2.1 Correlation Matrix
Multicollinearity is the undesirable situation where the correlations among the independent
variables are strong. So before we proceed, it is utmost important to figure out that the variables
are not mutually correlated amongst themselves. Logic behind assumption of no multicollinearity
is simple that if two or more independent variables are linearly dependent on each other, one
of them should be included instead of both, otherwise it will increase standard error thereby
making our results biased. In order to check multicollinearity among independent variables, a
Pearson’s correlation analysis has been performed. A suggested rule of thumb is that if the pair
wise correlation between two regressors is very high, in excess of 0.8, a strong multicollinearity
exists and may pose serious problem.
3.2.2 Time series properties of the Variables : ADF Unit Root test
By already incorporating the percentage change (first difference) of the original time series
data set, endeavour has been made to eliminate the trend line exhibited by the variables arising
due to non- stationary time series data. If a further non-stationarity of data is observed, the
same has to be eliminated by using a suitable statistical method, before conducting the regression.
One of the common methods to find whether a time series is stationary or not, is the Unit Root
test. There are numerous unit root tests. One of the most popular among them is the Augmented
Dickey-Fuller (ADF) test. Augmented Dickey -Fuller (ADF) is an extension of Dickey -

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Fuller test. Therefore before we proceed to the multiple linear regression, the ADF test is
computed using E-VIEWS to ensure the stationarity of the data set.
For ADF Test
Null Hypothesis H0: The data set has a Unit-Root, data set is non-stationary
Alternate Hypothesis H1: The data set doesn’t have a Unit-Root, data set is stationary
3.2.3 Granger Causality:
Granger Causality test was applied to understand the impact of key macroeconomic variables
such as Wholesale Price Index, Industrial Production Index, Oil Price, Gold Prices, Call
Money Rate, Balance of Trade, FII investment in Equity and Nifty on USDINR currency
prices. According to Granger (1969), this test will answer the question of whether X causes
Y. Y is said to be Granger-caused by X if X helps in the prediction of Y, or equivalently if the
coefficient on the lagged X are statistically significant. To show that X Granger cause Y, first
step is to consider an autoregression for Y. Next, lagged values of X are added as the extra
independent variables. Granger Causality test results are very sensitive to the number of lags
used in the analysis. There are four different criteria for specifying the lag length. This study
will adopt Akaike information criterion (AIC) suggested by Akaike (1974). The equation for
the pairwise Granger causality tests are as follow:

Yt   0  1Yt 1  ....   iYt 1  1 X t 1  ....   i X t 1  t (4)

Where, Xt and Yt = Monthly time series data of Wholesale Price Index, Industrial Production
Index, Oil Price, Gold Prices, Call Money Rate, Balance of Trade, FII investment in Equity
Nifty and USDINR currency prices. The null hypothesis is rejected if the computed F-value
exceeds the critical F value at the chosen level of significance (0.05). This implies that X does
Granger cause Y. The test is performed in pair-form.
µt = error term at time t
The F test is used to test the hypotheses of the Granger Causality as follow:
H0: β1 = β2= 0 (X does not Granger cause Y)
H1: At least one of the β1 # 0

3.2.4 Regression Analysis:

Y = β0 + β1 X1 + β2 X2 + β3 X3 + β4 X4 + β5 X5 + β6 X6 + β7 X7 + β8 X8 + β9 X9 + εi
Where:
Y Monthly change in the weighted average Call money rate (CMR)
X1 Monthly percentage change in the average Gold Price (G): Rs per 10 gram
X2 Monthly percentage change in the average Oil Price (OP): Brent Crude in USD per Barrel

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X3 Monthly FII investments in Equity Market (FII_Equity): USD billion
X4 Monthly percentage change in the Index of Industrial Production (IIP)
X5 Monthly Money Supply: USD billion
X6 Monthly percentage change in the Balance of Trade (BoT): USD million
X7 Monthly percentage change in the Purchasing Manger Index(PMI)
X8 Monthly percentage change in the Wholesale Price Index (WPI)
X9 Monthly percentage change in the USDINR
εi Error Term
βi Co-efficient of the corresponding Regression variable
β0 Constant term
3.2.5 Vector Autoregressive Regression
Vector Autoregressive Model (VAR model)
Vector autoregression (VAR) is an econometric model used to capture the linear
interdependencies among multiple time series. VAR models generalize the univariate auto
regression (AR) models by allowing for more than one evolving variable. All variables in a
VAR are treated symmetrically in a structural sense (although the estimated quantitative response
coefficients will not in general be the same); each variable has an equation explaining its evolution
based on its own lags and the lags of the other model variables.
yi,t = A(L)yi,t + B(L)xi, t + εi,t
where : y and x are two variables of interest;
L is lag operator;
A and B are vectors of coefficients;
εi,ti, t is regression residuals.
The subscript t denote time.
A VAR model describes the evolution of a set of k variables (called endogenous variables)
over the same sample period (t = 1, ..., T) as a linear function of only their past values. The
variables are collected in a k × 1 vector yt, which has as the i th element, yi,t, the time t
observation of the i th variable. For example, if the i th variable is USDINR, then yi,t is the
value of USDINR at time t. In the paper lag values of upto 4 was considered for VAR analysis
An estimated VAR model can be used for forecasting, and the quality of the forecasts can be
judged, in ways that are completely analogous to the methods used in univariate autoregressive
modelling.
4. Results and Analysis
4.1 Correlation Analysis
Before proceeding to analysis following corrections were applied to data points to make sure
that errors do not creep in the regression analysis. The correlation results values among the
independent variables were shown in Table 1 below.
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Table 2: Correlation values among variables

CMR
USD
INRExchange rate 0.58
PMI -0.29
BoT USD -0.52
MS 0.87
IIP 0.68
FII_Equity -0.04
Brent_crude 0.87
Gold price 0.92
WPI 0.71
Source : Author’s calculation
Above table 2 indicates that there is a negative correlation between CMR and purchasing
manager index (PMI), balance of trade BOT, and FII Equity. None of these negative correlation
were high. Positive and high correlation exists between CMR and money supply (MS), gold
price, WPI and Brent crude oil.
4.2 Stationarity Analysis
The Augmented Dickey-Fuller (ADF) test shows for all the ten variables the level data was
non-stationary except for FII Equity ; however stationarity was reached after the first difference.
Since data at Level is not stationary we take 1st difference. The paper finds that 1st differenced
data is stationary as absolute value of the ADF test statistics is larger than test critical values
5% level of significance. The results of Unit root test was shown in Table 3 below:
Table 3 : Results of Stationarity at levels and first differences

LEVEL FIRST DIFFERENCE

Intercept Trend+Intercept None Intercept Trend+Intercept None
USD Exchng
rate_avg mnth 0.349607 -2.026943 1.380326 -5.730352* -5.597674* -5.656542*
PMI
-2.638414*** -3.585422** 0.199348 -6.720221*
Monthly BoT USD
mny supply -2.465798 -1.808609 -0.146217 -9.899097* -10.1713* -9.949796*
IIP 0.847549 -2.447715 10.25342 -8.381416* -8.504337* -2.058284**
FII_Equity -3.786811* -5.214117* 0.626797 -5.590395* -8.820004* -13.42606*
Brent_crude_daily
Avg gold prc -5.25378* -5.205255* -3.759249*
WPI -2.269813 -2.377305 0.652097 -34.99847* -35.01355* -34.97641*
Wt Avg Monthly CMR -1.192566 -1.35683 2.004529 -6.972322* -6.944941* -6.545907*
-8.324109 -84.76179* 0.559304 -120.895* -117.9683* -84.0144*
-0.989202 -1.49051 0.742683 -5.948911* -5.899839* -5.791742*
Source : Author’s Calculation
*1% level of significance
**5% level of significance
***10% level of significance

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4.3 Results of Granger Causality

The results of granger causality was shown in Table 4 below. The results of granger causality
was shows that Money Supply causes movements in Call Money Market rate as it is evident
from p value.
Table 4 : Results of Granger Causality
Equations No. of
variables t Stat P-value Results
WT_AVG_MONTHLY_CMR does not Granger 56 0.20245 0.9358 Accepted
Cause FII_EQUITY
FII_EQUITY does not Granger Cause 1.68542 0.1692 Accepted
WT_AVG_MONTHLY_CMR
WT_AVG_MONTHLY_CMR does not Granger 56 1.62181 0.1845 Accepted
Cause IIP
IIP does not Granger Cause 1.14071 0.349 Accepted
WT_AVG_MONTHLY_CMR
WT_AVG_MONTHLY_CMR does not Granger 56 0.51691 0.7236 Accepted
Cause MNY_SUPLY
MNY_SUPLY does not Granger Cause 2.09563 0.0963 Rejected
WT_AVG_MONTHLY_CMR
WT_AVG_MONTHLY_CMR does not Granger 56 1.29124 0.287 Accepted
Cause MONTHLY_BOT_USD
MONTHLY_BOT_USD does not Granger Cause 1.42282 0.2411 Accepted
WT_AVG_MONTHLY_CMR
WT_AVG_MONTHLY_CMR does not Granger 56 0.77415 0.5476 Accepted
Cause PMI
PMI does not Granger Cause 0.66439 0.6199 Accepted
WT_AVG_MONTHLY_CMR
WT_AVG_MONTHLY_CMR does not Granger 56 1.07982 0.3772 Accepted
Cause USD_EXCHNG_RATE_AVG_MNTH
USD_EXCHNG_RATE_AVG_MNTH does not 1.3591 0.2624 Accepted
Granger Cause WT_AVG_MONTHLY_CMR
WT_AVG_MONTHLY_CMR does not Granger 56 1.3862 0.2532 Accepted
Cause WPI
WPI does not Granger Cause 0.51559 0.7246 Accepted
WT_AVG_MONTHLY_CMR
AVG_GOLD_PRC does not Granger Cause 56 0.30535 0.8729 Accepted
WT_AVG_MONTHLY_CMR
WT_AVG_MONTHLY_CMR does not Granger 0.87811 0.4843 Accepted
Cause AVG_GOLD_PRC
BRENT_CRUDE_DAILY does not Granger Cause 56 0.57509 0.6821 Accepted
WT_AVG_MONTHLY_CMR
WT_AVG_MONTHLY_CMR does not Granger 2.08426 0.0978 Rejected
Cause BRENT_CRUDE_DAILY
Source: Author’s calculation

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4.4 Results of Regression Analysis

The results of the regression analysis were summarised in the Table 5 below. Based on regression
model USDINR exchange rate, balance of trade, Brent Crude Oil Prices and Gold Price
significantly impacts monthly call rate as it is evident from t stat. the adjusted R square is 0.89
which indicate good fit of the model.
Call rates increase during volatile forex market conditions. This increase is a result of monetary
measures for tightening liquidity conditions and short position taken by market agents in domestic
currency against long positions in US dollars in anticipation of higher profits through depreciation
of the rupee. Banks fund foreign currency positions by withdrawing from the inter bank call
money market which leads to a hike in the call money rates.
Table 5 : Results of Regression Analysis
Variables Null Hypothesis t Stat P-value Results
INR USD Exchange rate has no
significant relationship with Avg.
INR USD Exchange rate Monthly Call Rate -1.78063 0.081049 Reject
PMI has no significant Accept
relationship with Avg. Monthly
PMI Call Rate -1.12707 0.265093
Monthly BOT has no significant
relationship with Avg. Monthly
Monthly BOT Call Rate 3.328228 0.001646 Reject
Money supply has no significant
relationship with Avg. Monthly
Money supply Call Rate 0.796034 0.429776 Accept
IIP has no significant relationship
IIP with Avg. Monthly Call Rate -0.03704 0.970597 Accept
FII_Equity has no significant
relationship with Avg. Monthly
FII_Equity Call Rate -0.34304 0.733003 Accept
Brent_Crude_Oil Price has no
significant relationship with Avg.
Brent_Crude_Oil Price Monthly Call Rate 2.129474 0.038162 Reject
Gold price has no significant
relationship with Avg. Monthly
Gold price Call Rate 5.444085 1.58E-06 Reject
WPI has no significant
relationship with Avg. Monthly
WPI Call Rate -1.36713 0.177701 Accept

Source: Author’s calculation

Regression
Statistics
Multiple R 0.953425
R Square 0.909019
Adjusted R
Square 0.892643
Standard Error 0.707897
Observations 60
Source: Author’s calculation

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4.5 Results of VAR

The paper concludes that more than 90% of the movements in call money rate can be explained
by modelling the key economic factors through VAR. the value of call money rate is affected
by the lag values of Oil price (up to four lags), call money market rate (up to three lags),
Foreign investments in India (up to a certain limit) and lag values of money supply. The monthly
call money market rate is also effected to a certain extent by the lag values of Balance of
Trade, Purchasing Manager Index (PMI) and Wholesale Price Index (WPI). The results of
VAR model is reported in Table 6 below.
Table 6: VAR model results
Equation: WT_AVG_MONTHLY_CMR = C(361)*USD_EXCHNG_RATE_AVG
_MNTH(-1) + C(362)*USD_EXCHNG_RATE_AVG_MNTH(-2) + C(363)
*USD_EXCHNG_RATE_AVG_MNTH(-3) + C(364)*USD_EXCHNG_RAT
E_AVG_MNTH(-4) + C(365)*AVG_GOLD_PRC(-1) + C(366)
*AVG_GOLD_PRC(-2) + C(367)*AVG_GOLD_PRC(-3) + C(368)
*AVG_GOLD_PRC(-4) + C(369)*BRENT_CRUDE_DAILY(-1) + C(370)
*BRENT_CRUDE_DAILY(-2) + C(371)*BRENT_CRUDE_DAILY(-3) +
C(372)*BRENT_CRUDE_DAILY(-4) + C(373)*FII_EQUITY(-1) + C(374)
*FII_EQUITY(-2) + C(375)*FII_EQUITY(-3) + C(376)*FII_EQUITY(-4) +
C(377)*IIP(-1) + C(378)*IIP(-2) + C(379)*IIP(-3) + C(380)*IIP(-4) +
C(381)*MNY_SUPLY(-1) + C(382)*MNY_SUPLY(-2) + C(383)
*MNY_SUPLY(-3) + C(384)*MNY_SUPLY(-4) + C(385)
*MONTHLY_BOT_USD(-1) + C(386)*MONTHLY_BOT_USD(-2) +
C(387)*MONTHLY_BOT_USD(-3) + C(388)*MONTHLY_BOT_USD(-4)
+ C(389)*PMI(-1) + C(390)*PMI(-2) + C(391)*PMI(-3) + C(392)*PMI(-4) +
C(393)*WPI(-1) + C(394)*WPI(-2) + C(395)*WPI(-3) + C(396)*WPI(-4) +
C(397)*WT_AVG_MONTHLY_CMR(-1) + C(398)*WT_AVG_MONTHLY_
CMR(-2) + C(399)*WT_AVG_MONTHLY_CMR(-3) + C(400)
*WT_AVG_MONTHLY_CMR(-4)
Observations: 56
Mean dependent var
R-squared 0.9943 6.681313
S.D. dependent var
Adjusted R-squared 0.980406 2.118758
S.E. of regression 0.296579 Sum squared resid
Durbin-Watson stat 2.22396 1.407347
Source: Author’s calculation

5. Conclusion
Correlation exercise shows that there is a negative correlation between CMR and purchasing
manager index (PMI), balance of trade BOT, and FII Equity. None of these negative correlation

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 Kalsie

were high. Positive and high correlation exists between CMR and money supply (MS), gold
price, WPI and Brent crude oil.ADF test shows for all the ten variables the level data was
non-stationary except for FII Equity ; however stationarity was reached after the first
difference.The results of granger causality was shows that Money Supply causes movements
in Call Money Market rate. The result of regression analysis shows that USDINR exchange
rate, balance of trade, Brent Crude Oil Prices and Gold Price significantly impacts monthly
call rate.
The paper concludes that more than 90% of the movements in call money rate can be explained
by modelling the key economic factors through VAR. the value of call money rate is affected
by the lag values of Oil price (up to four lags), call money market rate (up to three lags),
Foreign investments in India (up to a certain limit) and lag values of money supply. The monthly
call money market rate is also effected to a certain extent by the lag values of Balance of
Trade, Purchasing Manager Index (PMI) and Wholesale Price Index (WPI).
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