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Informist, Thursday, Sept. 4, 2025

 

By Shravani Chandiwade

 

MUMBAI – The four-day interbank call money market rate settled at the Reserve Bank of India's repo rate Thursday as banks flocked to the market after the central bank said money markets would remain operational on Friday, when they were to be closed on account of Id-e-Milad, dealers said. In the early trading session, money market rates were below the RBI's repo rate due to ample surplus and lack of major outflows.

 

The four-day interbank call money market ended at 5.50%, up from its previous close of 5.35%. The volume traded in the call market Thursday stood at INR 173.67 billion. The rate moved in a band of 4.85-5.50% 

 

The RBI Thursday said the foreign exchange, government securities, and money markets would remain open on Friday, and would be shut for Id-e-Milad holiday on Monday. Reversals of the standing deposit facility and marginal standing facility will happen on Friday; earlier, this was scheduled for Monday. The release from the central bank came after the Maharashtra government shifted the holiday for Id-e-Milad to Monday from Friday, for Mumbai and its suburban regions.

 

"The call market opened at the expected levels ahead of the VRRR auction and the long weekend," a dealer at a private sector bank said. "But later in the day, the Maharashtra government's decision to shift the holiday to Monday created uncertainty in the market." Traders were expecting money market rates to remain down during the day as they reasoned that surplus systemic liquidity was comfortable. However, the rescheduling of the holiday made banks panic and borrow aggressively in the money market, dealers said. 

 

As per latest data from RBI, the central bank net absorbed INR 2.97 trillion from the banking system Wednesday, lower than INR 3.03 trillion Tuesday. Meanwhile, banks reduced their cash reserves with the central bank to INR 9.42 trillion Wednesday from INR 9.51 trillion Tuesday. The daily average cash reserve requirement for the fortnight ending Friday is INR 9.63 trillion.

 

Despit the ample surplus liquidity in the banking system, demand for funds picked up as banks had already locked up funds at the RBI's variable rate reverse repo auction Thursday. Banks participated aggressively at the eight-day variable rate reverse repo auction Thursday where they offered funds aggregating INR 1.81 trillion, down from the notified amount of INR 1.50 trillion. The central bank accepted offers worth INR 1.5 trillion and it set the cut-off rate at 5.49%. 

 

"Banks have already locked up the majority of their funds in the VRRR auction, plus they were also seen active on the lending front in the call market," a dealer at a private sector bank said. "But the moment the RBI's circular confirmed that the money market is going to remain operational Friday, banks rushed to the TREPs market to borrow funds for their intraday needs tommorow, leading the rates to go higher during closing hours."

 

The triparty repo market rate ended at 5.73% Thursday, sharply higher than 5.32% Wednesday. The weighted average triparty repo rate ended at 5.36%, up from the previous close of 5.26%. The total volume traded in the tri party repo market was INR 3.91 trillion.

 

OUTLOOK

* On Friday, the four-day call money rate may open near the RBI's repo rate of 5.50% as traders expect fewer lenders in the market due to the rescheduling of the holiday for Id-e-Milad. 

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

 

CALL RATE

5.50%--Thursday's close for four-day loans

5.40%--Thursday's open for four-day loans

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

 

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

 

TENURE	Thursday	Wednesday
Overnight	5.40	5.39
3-day	--	--
14-day	5.71	5.71
1-month	5.95	5.95
3-month	6.09	6.09

 

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India Call: Below RBI's repo on ample liquidity; VRRR auction limits fall

 

The interbank call money rate was below the Reserve Bank of India's repo rate of 5.50% Thursday due to ample surplus liquidity in the banking system. However, with the central bank conducting an eight-day variable rate reverse repo auction of INR 1.50 trillion, the fall in rates may be limited, dealers said. 

 

At 0930 IST, the four-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 was 5.30% with the same weighted average rate. Trade volume in the call market was around INR 91.05 billion at 0930 IST, compared with INR 74.58 billion at the same time Wednesday.

 

As per latest data from RBI, the central bank net absorbed INR 2.97 trillion from the banking system Wednesday, lower than INR 3.03 trillion Tuesday. Meanwhile, banks reduced their cash reserves with the central bank to INR 9.42 trillion Wednesday from INR 9.51 trillion Tuesday. The daily average cash reserve requirement for the fortnight ending Friday is INR 9.63 trillion.

 

"There is good enough liquidity in the system and the outflows in VRRR today are also offsetting only," a dealer at a private sector bank said. "Rates may not come down much before the holiday, but I don't see it rising from here."

 

Though the net liquidity surplus in the system is likely to have reduced from Tuesday, expected flows from the RBI's cut in cash reserve ratio kept rates lower than the repo rate, dealers said. Additionally, with INR 1.83 trillion of funds released as the old VRRR auctions reversed Thursday, liquidity in the system is seen as ample, dealers said.

 

The RBI 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 reduction in cash reserve ratio. which will be carried out in four equal tranches with effect from the fortnights beginning Sept. 6, Oct. 4, Nov. 1, and Nov. 29, is expected to infuse liquidity to the tune of INR 2.5 trillion into the banking system.

 

At the VRRR auction Thursday, traders expect nearly 90% of the auction, or INR 1.30 trillion, to get subscribed. State-owned banks were likely the major participants at the auction, dealers said. Fall in rates Thursday may be limited as traders are seen borrowing funds ahead of the long weekend. Money markets will remain closed Friday due to Eid-e-Milad.  End

 

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

 

Edited by Avishek Dutta

 

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