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Informist, Wednesday, Oct. 1, 2025

By Srijita Bose

MUMBAI – The two-day interbank call money rate ended below the Reserve Bank of India's Standing Deposit Facility of 5.25% on low demand for funds and as the systemic liquidity in the banking system improved. Inflows owing to the government's salary and pension payments and the RBI's variable rate repo auction also kept rates from rising to the RBI's repo rate, dealers said. 

On Wednesday, the two-day interbank call rate ended at 5.00%, flat from Tuesday. During the day, the call rate moved in a range of 4.75-5.45%. The weighted average call rate was at 5.37%, sharply lower than 5.69% in the previous session. Total trade volumes in the call market were at 166.27 billion, up from INR 119.24 billion Tuesday. 

Government's salary and pension payments are expected to infuse nearly INR 1 trillion worth of liquidity into the system, market participants said. Additionally, with no major outflows during the week, borrowing by banks was limited during the day, they said. 

"Banks did not borrow much today, and with the government's month-end inflows coming in liquidity would have also increased," a dealer at a state-owned bank said. "Also, liquidity will increase further Saturday so, rates will remain comfortable." A 25-basis-point cut in the cash reserve ratio will come into effect Saturday, which is expected to infuse INR 600 billion to INR 700 billion of durable liquidity into the system. This will be second 25-bps cut in the CRR, of the 100-bps of cut announced in August, and will bring down the CRR to 3.50%.

The RBI Tuesday net absorbed INR 780.21 billion from the banking system, which is a proxy for systemic liquidity surplus, higher than INR 550.06 billion on Monday. Market participants were of the view the rise in liquidity surplus Tuesday was majorly due to the redemptions and coupon payments of bonds and expected liquidity in the system to rise further due to the government's payouts over the next few days. 

In the triparty repo market too, demand from banks was limited. As the redemption pressure for mutual funds passed after the month-end, rates in the triparty repo segment eased, dealers said. The triparty repo rate ended at 5.23% Wednesday, against 5.50% Tuesday. The weighted average triparty repo rate was at 5.29%, sharply down from 5.47% Tuesday. Total volumes in the triparty repo segment were at INR 4.20 trillion, up from INR 4.00 trillion Tuesday. 

At the two-day INR 1 trillion variable rate repo auction, banks subscribed only INR 73.70 billion. "We did not need funds today and rates in the money markets were also fall lower, so why bother picking up at VRR?" a dealer at a private sector bank said. 

At the RBI's Monetary Policy Committee decision Wednesday, the panel kept the repo rate unchanged at 5.50%, with a status quo on a 'neutral' stance. External MPC members Nagesh Kumar and Ram Singh were of the view that the policy stance should be changed to 'accommodative', which dealers said opened up room for a rate cut at the MPC's next policy meeting in December. 

OUTLOOK

* Money markets are shut Thursday for Gandhi Jayanti. On Friday, the three-day call money rate is likely to be near the RBI's repo rate due to reversal of the variable rate repo auction.  

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

CALL RATE

5.00%--Wednesday's close for two-day loans

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

5.00%--Tuesday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Below repo rate; focus on MPC outcome, some see 25 bps rate cut

MUMBAI – The two-day interbank call money rate opened below the Reserve Bank of India's repo rate on Wednesday as systemic liquidity in the banking system improved. Traders are waiting for the outcome of the RBI's Monetary Policy Committee meeting at 1000 IST, with several traders refraining from borrowing or lending due to expectations of a 25 basis point cut.

Trade volume in the call market was around INR 28.97 billion at 0930 IST, higher than INR 12.20 billion same time Tuesday. Primary dealerships were largely on the borrowing side, and others refrained from active trade until the MPC outcome. Most traders expect a soft commentary by the rate-setting panel and by RBI Governor Sanjay Malhotra to set the stage for a rate cut in December, while a few expect a 25 bps rate cut.

"People will start borrowing after the outcome, I can see the confusion among traders, the number of borrowers on a normal day is much more than what we're seeing today," a dealer at a private sector bank said.

At 0920 IST, the two-day call money rate was at 5.40%. The weighted average was 5.42%. The rate in the tri-party repo market was 5.25% and the weighted average rate was 5.29%.

The RBI Tuesday net absorbed INR 780.21 billion from the banking system, which is a proxy for systemic liquidity surplus, higher than INR 550.06 billion on Monday. The liquidity improved due to the government's salary and pension payouts, which is expected to add INR 1.00 trillion to INR 1.50 trillion to the systemic liquidity in total this week.

Later in the day, the RBI will conduct a two-day VRR auction for INR 1.00 trillion at 1200 IST to 1230 IST. Subscription at the auction is seen minimal, at around 50% or lesser, since rates in the triparty repo market were near the RBI's Standing Deposit Facility rate of 5.25%. A reversal of INR 851.97 billion of Tuesday's overnight VRR is due Wednesday.

"No one will go at VRR because government spending has come in and rates in TREPS are already down," a dealer at a state-owned bank said. "In fact, I am hoping RBI brings VRRR next week because surplus will be comfortable."

Dealers were largely unfazed by the revised liquidity management norms the central bank published Tuesday, since there were no new changes compared to the RBI's current liquidity management operations.

Meanwhile, banks maintained INR 9.90 trillion of cash balance with the RBI Tuesday, higher than INR 9.25 trillion on Monday. The daily average cash reserve requirement for the fortnight ending Oct. 3 is INR 9.13 trillion.  (Cassandra Carvalho)

End

Edited by Akul Nishant Akhoury

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