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Informist, Friday, Aug. 22, 2025

By Srijita Bose

MUMBAI – The interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 5.25% as demand for funds fell after an initial spurt, dealers said, it being reporting Friday for banks. However, the weighted average call rate was higher than the central bank's repo rate for the second day as outflows on account of goods and services tax payments narrowed the liquidity surplus in the banking system, they said.

The weighted average call rate ended at 5.51% Friday, against 5.52% Thursday. The weighted average triparty repo rate was also higher than the repo rate at 5.51%, against 5.55% Thursday. The three-day call money market rate settled at 4.95% compared with the one-day call rate of 5.05% Thursday. The call rate moved in the range of 4.00-5.63% Friday. The triparty repo market rate closed at 5.25%, down from 5.60% Thursday.

The liquidity surplus in the banking system, as indicated by the central bank's net absorption of funds, was INR 2.17 trillion Thursday, lower than INR 2.65 trillion Wednesday. Banks also lowered the cash balance maintained with the central bank to INR 9.29 trillion Thursday from INR 9.34 trillion Wednesday ahead of reporting Friday. The decline in the surplus liquidity was on account of the tax outflows; the total outflows are estimated at INR 1.85 trillion.

"It was reporting Friday and there are outflows, so rates were higher," a dealer at a private-sector bank said. "PDs (primary dealers) and small co-operative banks were major borrowers today."

The finance ministry has extended the deadline for filing GST returns to Aug. 27 for businesses in some parts of Maharashtra, so the last tranche of the outflow is likely to be next week. This led to a fall in rates after the initial rush triggered by the outflows, dealers said.

Meanwhile, at the INR 1.25-trillion, seven-day variable rate reverse repo auction, banks and primary dealers parked INR 757.81 billion. The RBI's eight-day VRRR auction, which was reversed Friday, released INR 1.83 trillion worth of liquidity. Some traders expected the RBI to announce a variable rate repo auction to limit the rise in rates, dealers said. Rates were also higher due to the INR 360.00-billion gilts auction. 

OUTLOOK

* Money markets are closed Saturday. On Monday, the one-day call money rate may open above the RBI's repo rate of 5.50% on demand for funds due to GST outflows.

* During the day, the call rate is seen in the range of 4.80-5.60%, dealers said.

CALL RATE

4.95%--Friday's close for three-day loans

5.52%--Friday's open for one-day loans

5.05%--Thursday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Above repo as RBI holds VRRR, liquidity surplus down on GST outflows

MUMBAI – Weighted average rates in the call money market were above the Reserve Bank of India's repo rate of 5.50% Friday ahead of the central bank's seven-day variable rate reverse repo auction. The rates were also elevated owing to the liquidity drain from the banking system from outflows due to goods and services tax payouts which commenced Wednesday, dealers said. Borrowing needs are expected to remain firm during the day as the current reporting fortnight ends Friday and banks will need to maintain the daily cash reserves with the central bank, they said. 

"The rates have hardened after GST, and there is weekend ahead, so that is also keeping the rates high," a dealer at a private sector bank said. "But now, the major portion of outflows is already done and there will be reversal of the previous (eight-day) VRRR auction too, so maybe rates can go down later." At 0920 IST, the three-day call money market rate was at 5.55%. The weighted average rate was at 5.57%. The rate in the triparty repo market was 5.45% and the weighted average triparty repo rate was 5.48%. 

The surplus liquidity in the banking system, as indicated by the central bank's net absorption of funds, was at INR 2.17 trillion on Thursday, which was lower than INR 2.65 trillion Wednesday. Banks also lowered the cash balance maintained with the central bank to INR 9.29 trillion Thursday from INR 9.34 trillion Wednesday. The decline in the surplus liquidity was on account of the tax outflows; total outflows are estimated to aggregate to around INR 1.85 trillion. The finance ministry has also extended the deadline for filing GST returns to Aug. 27 for businesses in some parts of Maharashtra, so the last tranche of the outflow will likely be till next week. 

Money market rates were also near the repo rate as the central bank conducted a seven-day variable rate reverse repo auction for INR 1.25 trillion Friday at 0930-1000 IST. Traders expect the auction to be undersubscribed with total offers pegged at INR 775 billion, as per the median of an Informist poll of seven market participants. Some traders were expecting the central bank to skip the auction Friday on account of high money market rates, dealers said.

"It (RBI) likely wanted to roll over the previous VRRR auction and today, around INR 1.80 trillion of liquidity will come back from that," a dealer at a state-owned bank said. "There are no other outflows after this, GST payment is over. So maybe, that's why it decided to hold another auction today." The central bank's eight-day variable rate reverse repo auction is due for reversal Friday, which will release INR 1.83 trillion into the banking system.  (Vidhushi RajPurohit)

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Rajeev Pai

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