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Informist, Wednesday, Oct. 15, 2025

By Cassandra Carvalho

MUMBAI – The one-day interbank call money rate Wednesday ended below the Reserve Bank of India's Standing Deposit Facility rate as demand for funds was low due to lack of significant outflows during the day, dealers said. However, traders were spooked by the RBI's two-day variable rate reverse repo auction, as it was unexpected and briefly caused money market rates to spike intraday, they said. Earlier in the day, traders were focussed on the central bank's operations in defense of the rupee in the foreign exchange market to assess its impact on systemic liquidity. However, some traders shifted focus to the surprise VRRR auction and what it indicated about the central bank's liquidity management, dealers said. 

The one-day call rate ended at 5.00% against Tuesday's rate of 5.40%. The weighted average call rate for the day was 5.37%, down from 5.39% the previous day. The total volume in the call money market was INR 189.44 billion, up from INR 152.14 billion the previous day. The triparty repo rate closed at 5.15%. Its weighted average rate was 5.32% as against 5.27% Tuesday. The surplus liquidity in the banking system, as measured by the RBI's net liquidity absorbed, fell slightly to INR 1.28 billion Tuesday from INR 1.30 trillion Monday.

The RBI accepted all offers worth INR 162.85 billion at a INR 250-billion two-day VRRR auction it held at 1100-1130 IST. The auction was announced around half-an-hour before it was conducted, which took some traders by surprise.

"I've concluded from today's VRRR auction that RBI is comfortable with (INR) 1 trillion liquidity surplus," a dealer at a state-owned bank said. "Earlier, I thought it was comfortable with (INR) 1.5 trillion but that view has changed...RBI has said they will inform us beforehand but last time (last Thursday's) VRRR auction also same thing happened, the timing was wrong and people have to cancel their quotes when suddenly rates go up." The triparty repo market was most impacted by the VRRR auction, even as call rates remained largely stable during the day.

Traders are watchful about the RBI's next move on liquidity, with most expecting a variable rate repo auction to be announced before next week's payments for goods and services tax. Rates could rise Thursday due to some funds being parked at the VRRR auction Wednesday. Moreover, a Bloomberg report, which cited a source, stating that the central bank is prepared to continue with its intervention until the rupee settles at a stronger level, left traders wondering what impact the continuous dollar sales by the central bank would have on rupee liquidity. Some traders expect daily VRR auctions to start, while others said that the liquidity would not be impacted since the RBI was conducting simultaneous buy-sell swaps while selling dollars. Since spot dollar sales drain out rupee liquidity from the banking system, the RBI conducts buy-sell swaps to replenish liquidity.

Traders are also tracking subscriptions at initial public offerings of companies after money market rates shot up last week due to funds locked up in IPOs, dealers said.

"Ever since LG Electronics last week, we're seeing good demand at the IPOs," a dealer at a private sector bank said. "So we're tracking that. We're getting a positive sense from the primary market listings and the equity market."

OUTLOOK

* On Thursday, the one-day call rate may open at the RBI's repo rate owing to demand for funds from banks early in trade, especially after Wednesday's two-day VRRR auction and a likely liquidity drain due to the RBI's intervention in the foreign exchange market, dealers said.

* During the day, the one-day call money rate is seen in the range of 4.90-5.70%, dealers said.

CALL RATE

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

5.42%--Wednesday's open for one-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Below repo; focus on RBI's FX interventions as rupee appreciates

MUMBAI – The one-day interbank call money rate was below the Reserve Bank of India's repo rate Wednesday on low demand for funds amid a lack of significant liquidity outflows during the day, dealers said. Rates are expected to ease further in the day after early demand for funds from primary dealerships eases, dealers said. Traders are closely tracking the movement of the rupee against the dollar for any signs of a drain in systemic liquidity. The central bank is likely to have intervened in the foreign exchange market to prevent depreciation of the local currency, dealers said. 

At 0945 IST, the one-day call rate was at 5.42%, against 5.40% at Tuesday's close. The weighted average call rate was 5.42%. Total volume in the call money market was INR 60.43 billion at 0930 IST, up from INR 34.25 billion Tuesday. The triparty repo rate was at 5.29% at 0945 IST, with the weighted average rate at 5.27%.

The banking system liquidity surplus, as measured by the RBI's net liquidity absorbed, fell slightly to INR 1.28 billion Tuesday from INR 1.30 trillion Monday. Some traders expect this figure to fall further Wednesday, due to the central bank's dollar sales in the foreign exchange market. The rupee opened at 88.2600 per dollar Wednesday, from 88.7975 per dollar at 1530 IST Tuesday. 

"I think maybe a ten to twenty thousand (INR 100 billion to INR 200 billion) gap (reduction)should be there (in liquidity Wednesday)," a dealer at a state-owned bank said. "...As of now nothing else is there (to track in money markets). Maybe USD/INR if there are major changes, since this was a very extreme change (at market open) but it has stabilised now and money market rates are also stable."

The impact of the RBI's interventions in the foreign exchange market may be minimal on systemic liquidity as the central bank has been conducting buy-sell swaps this week, dealers in the foreign exchange market said. Since spot dollar sales drain out rupee liquidity from the banking system, the RBI conducts buy-sell swaps to replenish liquidity. A buy-sell swap entails buying dollars for immediate delivery and entering into a contract to sell these at a future date, thereby postponing the drain on systemic liquidity.

Money market traders are also eyeing the liquidity outflows expected next week due to cash withdrawals during Diwali and outflows for goods and services tax payments. The RBI may conduct a variable rate repo auction to ease pressure on liquidity either on Friday or next week, dealers said. Outflows or cash withdrawals to the tune of INR 350 billion are expected for Diwali, which could be higher due to the Centre's incentives to boost consumer spending in the form of the recent cut in the goods and services tax structure, dealers said. Since the GST cut took effect on Sept. 22, GST payments by banks starting next week could be slightly lower than usual, around INR 1.6 trillion, compared to a usual estimate of INR 1.8 trillion to INR 2 trillion, dealers said. (Cassandra Carvalho)

End

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

Edited by Ashish Shirke

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