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Informist, Friday, Oct. 31, 2025

By Aaryan Khanna

NEW DELHI – The interbank call money market rate ended below the standing deposit facility rate as banks had met their funding requirements earlier on the reporting Friday, dealers said. The weighted average call and triparty repo rates were above the policy repo rate of 5.50% due to robust demand for funds amid tight banking system liquidity and cash tied up in bids for initial public offerings.

The three-day call rate ended at 5.10% Friday, against 5.45% for one-day loans Thursday. The weighted average call rate rose to 5.66% from 5.57% Thursday. Despite the call rate touching the Marginal Standing Facility rate of 5.75%, the Reserve Bank of India did not conduct a variable rate repo auction Friday even as a maturing auction drained INR 1.00 trillion of liquidity. Some traders had expected an announcement during the day when it did not come after market hours Thursday.

"Since there was no VRR (variable rate repo auction) today (Friday) banks have been very active in borrowing from TREPS (triparty repo) early in the day itself, including some PSUs (state-owned banks)," a dealer at a private-sector bank said. "Not sure what the RBI is thinking – yes there are month-end inflows but there was really a need for liquidity today on the reporting Friday that went straight to the TREPS market."

The weighted average rate in the larger triparty repo market, which includes mutual funds, was 5.58% Friday from 5.47% the previous day. Mutual funds were unable to meet the surge in banks' demand at the repo rate during the month-end period with seasonal outflows and as they had funds tied up as anchor investors in IPOs debuting next week, dealers said. However, the outflows were not as large as some traders had expected and mutual funds continued to be lenders in the market, capping rates, they said.

The central bank's net absorption from the banking system--a proxy for liquidity surplus--was INR 84.76 billion Thursday, against INR 145.90 billion Wednesday. Inflows from the government's routine salary, pension and subsidy payout were flowing in to the banking system but was getting offset by the RBI's persistent dollar sales to support the rupee, dealers said. The RBI was selling dollars in the spot market Friday as well to avert the rupee hitting its record low of 88.8025 against the dollar. The domestic unit ended at 88.7650 a dollar, down 0.7% against the greenback over the past two days. The impact of these foreign exchange operations are expected to prevent banking system liquidity from moving into a large surplus next week as well, dealers said.

OUTLOOK

On Saturday, the two-day call money rate may open near the RBI's repo rate owing to tight systemic liquidity, dealers said. Trade volumes may be muted as is usual on Saturdays, with banks having met their weekend requirements for funds on Friday.

During the day, the rate is seen in the range of 4.90-5.60%, dealers said. The RBI has so far not announced a variable rate repo operation for Monday, which may keep money market rates elevated Monday.

CALL RATE

5.10—Friday's close for three-day loans

5.65%--Friday's open for three-day loans

5.45%--Thursday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Near RBI MSF on firm demand for funds for reporting Fri, IPOs

MUMBAI – The interbank call money rate was near the Reserve Bank of India's Marginal Standing Facility rate on strong demand for funds to meet needs for reporting Friday, dealers said. Some initial public offerings lined up this week and the next are also likely to draw funds away from the money markets, which also kept rates up, they said.

At 1007 IST, the three-day call rate traded at 5.70%, with the same weighted average rate, against a close of 5.45% for one-day loans Thursday. Rates in the triparty repo segment traded at 5.54%, with the same weighted average rate.

With some funds locked up due to investments in initial public offerings, traders borrowed in the triparty repo segment to fund their reporting Friday needs, dealers said. Demand for funds also remained strong due to firm credit disbursement requirements from banks during the festive season, they said.  

"Actually, TREPS is behaving well still I don't think the usual month-end pressure has hit yet for mutual funds," a dealer at a state-owned bank said. "But for month-end needs, borrowing demand is aggressive today (Friday)."

The central bank's net absorption from the banking system--a proxy for liquidity surplus--was INR 84.76 billion Thursday, against INR 145.90 billion Wednesday. Though liquidity remained in a surplus, system liquidity continued to be tight. However, inflows from the government's salary and pension payouts have begun, and are expected to inject more liquidity into the system during the day.

Traders expect the government's month-end inflows to infuse INR 500 billion-INR 700 billion into the banking system liquidity by next week. The next tranche of the cash reserve ratio cut will also bring down reserve requirements by around INR 700 billion in the fortnight beginning Saturday, further easing liquidity conditions, dealers said.

Rates may cool down later in the day due to the government's inflows, dealers said. However, some traders expect the RBI to conduct a three-day variable rate repo auction Friday later in the day, if rates remain up due to continued demand for funds, they said. 

"A VRR (variable rate repo) could come in later in the day if rates rise further and maybe around INR 500 billion worth could come," a dealer at another state-owned bank said.  (Srijita Bose)

 End

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

Edited by Akul Nishant Akhoury

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