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Informist, Wednesday, Sept. 3, 2025

By Shravani Chandiwade

MUMBAI - The weighted average call money market rate ended below the Reserve Bank of India's repo rate of 5.50%, as surplus liquidity in the banking system rose to INR 3.03 trillion Tuesday from INR 2.90 trillion Monday, dealers said. Lack of signifcant outflows also kept most banks' borrowing requirements subdued, they said. 

The one-day call money market rate ended at 5.35% Wednesday. The call rate was slightly higher in the early trading hours due to firm demand for funds from primary dealerships, dealers said. "Some banks with fund requirements also rush to borrow funds in the morning as lenders are more active during that time," a dealer at a private sector bank said. 

However, for the majority of the trading session, the call market rate remained below the RBI's repo rate. Consequently, the weighted average call rate ended at 5.35% Wednesday, down from 5.39% Tuesday. Trade volumes in the call market were INR 206.05 billion, slightly higher than INR 194.53 billion Tuesday. 

The triparty repo market rate ended at 5.32% Wednesday. The weighted average triparty repo rate ended at 5.26%, around the same level as the previous close. "Banks were not seen that active on the borrowing front," a dealer at a private sector bank said, "They remained on the sidelines in TREPs market on high liquidity surplus." Traders see the liquidty surplus remaining around INR 3 trillion till Sept. 15, until advanced tax outflows commence. Some liquidity is also expected to be drained post outflows for tax deducted at source and excise duty payments, which is expected to commence by next week, dealers said. 

Post market hours, the central bank announced an eight-day variable rate reverse repo auction of INR 1.5 trillion on Thursday. The announcement was in line with traders' expectations as INR 1.87 trillion worth of variable rate reverse repo auctions are scheduled for reversal Thursday. 

Traders were also expecting the central bank to announce the auction as surplus liquidity is expected to widen slightly post the first tranche of cash reserve ratio cut by the RBI. The central bank cut the CRR by 100 basis points to 3% of banks' net demand, and time liabilities, Governor Sanjay Malhotra had said in the June Monetary Policy Committee's outcome. The cut will be carried out in four equal tranches effective from the fortnight beginning Saturday. The CRR cut is estimated to release a total sum of about INR 2.5 trillion into the banking system.

OUTLOOK

*  On Thursday, the four-day call money rate may open near the RBI's repo rate of 5.50% ahead of the VRRR auction. 

*  During the day, the four-day call rate is seen in the range of 4.75-5.50%, dealers said.

CALL RATE

5.35%--  Wednesday's close for one-day loans

5.40%--  Wednesday's open for one-day loans

5.24%--  Tuesday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Below RBI's repo rate as surplus liquidity rises above INR 3 tln

The interbank call money rate was below the Reserve Bank of India's repo rate of 5.50% Wednesday as the surplus liquidity in the banking system rose above INR 3 trillion Tuesday, dealers said. Rates in the money market are expected to slide below the Standing Deposit Facility rate of 5.25% once the early trade rush ebbs, they said. Some expectations of the central bank conducting a variable reverse rate repo auction also kept the rate slightly higher in early trade. 

At 0930 IST, the one-day interbank call money market rate was 5.40% and the weighted average call rate was at the same level. The rate in the tri-party repo market opened at 5.28% and the weighted average tri-party repo rate was 5.27%. Trade volumes in the call market were around INR 74.58 billion at 0930 IST, compared with INR 73.61 billion at the same time Tuesday.

Primary dealerships were the major borrowers in the call market and some banks were also on the borrowing side as they have parked nearly INR 1.9 trillion of liquidity with the central bank under its variable reverse rate repo auctions of different tenures. The auctions are due for reversal on Thursday. "There might be VRRR if the call money rates come down to 5.20—5.21%," a dealer at a private sector bank said. 

As per latest data from the RBI, the central bank net absorbed INR 3.03 trillion from the banking system Tuesday, higher than INR 2.90 trillion Monday. Meanwhile, banks reduced their cash reserves with the central bank to INR 9.51 trillion Tuesday from INR 9.57 trillion Monday. The daily average cash reserve requirement for the fortnight ending Friday is INR 9.63 trillion.

Surplus liquidity is expected to increase further in the coming week from the first tranche of cash reserve ratio cut. The central bank cut the cash reserve ratio by 100 basis points to 3% of banks' net demand, and time liabilities, Governor Sanjay Malhotra had said in the June Monetary Policy Committee's outcome. The cut in banks' cash reserve ratio will be carried out in four equal tranches with effect from the fortnight beginning Saturday.

"The liquidity will likely be around INR 2.5 trillion and we expect to get at least 25% of it (from the first tranche of cut)," the dealer at the private bank said.   End

Edited by Avishek Dutta

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