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Informist, Tuesday, Oct. 14, 2025

By Cassandra Carvalho

MUMBAI – The one-day interbank call money rate Tuesday ended below the Reserve Bank of India's repo rate as demand for funds eased in the latter half of trade. However, the rate ended above the Standing Deposit Facility as traders resorted to borrowing in the call money market once the triparty repo market shut. Liquidity in the banking system was just sufficient for funding requirements but not in excess for the RBI to conduct any liquidity draining operations, dealers said. 

The one-day call rate ended at 5.40% against Monday's rate of 5.50%. The weighted average call rate for the day was 5.39%, down from 5.47% the previous day. The total volume in the call money market was INR 152.14 billion, down from INR 195.50 billion the previous day. The triparty repo rate closed at 5.32%, with its weighted average rate at 5.27%. The banking system liquidity surplus, as measured by the RBI's net liquidity absorbed, fell to INR 1.30 trillion Monday from INR 1.55 trillion on Sunday.

After funds tied up for subscription to the large initial public offerings last week were released, demand for funds ebbed Tuesday, dealers said. Fresh IPOs this week were not of such a substantial size and moreover, subscription interest in these was not as high, dealers said. Rates were largely below repo during the day after early demand for funds eased, dealers said. However, the liquidity surplus in the banking system was not large enough for the weighted-average call money rate to be near SDF and for the RBI to subsequently hold a variable rate reverse repo operation, dealers said. Mutual funds were active lenders in the triparty repo market, which kept rates in the market close to the SDF rate. 

"This week's IPOs are not so big in size, so it's not a problem for liquidity," a dealer at a state-owned bank said. "And demand is also not so much, as was seen last week."

Traders expect the RBI to conduct a variable rate repo auction of around INR 1.00 trillion either on Friday or next week to ease the systemic liquidity due to cash withdrawals during Diwali and outflows of around INR 1.6 trillion for goods and services tax payments. As money markets are shut for two days next week, traders expect goods and services tax outflows to begin on Oct. 23 instead of the usual 21st of the month. Traders expect cash withdrawals of around INR 300 billion during Diwali. 

However, loan disbursements are likely to be on the lower side next week since requirements by corporates are likely to be on hold during the festive season, dealers said. This week, there are no major inflows or outflows scheduled, dealers said. 

"Diwali time, everyone is on holiday, all corporates who need loans and all, all their labourers go home during the festival, so there's not much demand for disbursements, it's all on pause (during Diwali)," a dealer at another state-owned bank said. 

OUTLOOK

* On Wednesday, the one-day call rate may open at the RBI's repo rate owing to demand for funds from banks in early trade.

* During the day, the one-day call money rate is seen in the range of 4.90-5.60%, dealers said.

CALL RATE

5.40%--Tuesday's close for one-day loans

5.50%--Tuesday's open for one-day loans

5.50%--Monday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: At repo rate on early demand for funds; liquidity seen adequate

NEW DELHI - The interbank call money rate was at the Reserve Bank of India's repo rate Tuesday due to early demand for funds from primary dealerships, dealers said. However, rates are expected to fall below the repo rate during the day as demand is likely to fade and as liquidity in the banking system is seen sufficient to meet banks' needs, they said.

At 0945 IST, the one-day call rate was at 5.50%, flat against Monday's close. The weighted average call rate was 5.49%. Total volumes in the call money market were INR 34.25 billion at 0930 IST, down from INR 68.13 billion Monday. Traders expect the day's volumes to remain subdued at INR 130 billion–INR 150 billion due to a lack of demand to cover cash needs, dealers said.

The banking system liquidity surplus, as measured by the RBI's net liquidity absorbed, fell to INR 1.30 trillion Monday from INR 1.55 trillion on Sunday. The liquidity surplus fell on account of the payment of INR 280 billion for the gilt auction settled Monday. There were no large outflows scheduled Tuesday, dealers said. The redemption of INR 163 billion of state bonds may aid liquidity at the margin.

"Anything above INR 1 trillion is comfortable for the market to stay at the repo rate, and not go beyond it," a dealer at a state-owned bank said. "Since there are no outflows or any strain even overnight, the rates should fall 5-10 basis points later. Mutual funds have also started lending again in TREPS (triparty repos), keeping the rate comfortable."

Mutual funds, usually lenders in the triparty repo market, had turned borrowers last week due to their hefty investments in marquee initial public offerings. This activity had normalised this week, dealers said. The triparty repo rate was at 5.31% at 0945 IST, with the weighted average rate also the same.

Moreover, at current levels of liquidity and with the money market rates aligned with the repo rate on a day-to-day basis, the RBI may avoid announcing a liquidity fine-tuning operation this week, dealers said. It may next infuse liquidity amid goods and services tax outflows next week. (Aaryan Khanna) 

End

Edited by Saji George Titus

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