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Informist, Thursday, Nov. 6, 2025

By Aaryan Khanna

NEW DELHI – The interbank call money market rate ended below the Reserve Bank of India's Standing Deposit Facility rate of 5.25% due to comfortable liquidity conditions. The abundant liquidity kept rates below the repo rate for most of the day, except in early trade when primary dealers borrowed to meet funding requirements, dealers said.

The one-day call rate ended at 4.95%, at the same rate as for two-day loans on Tuesday. Money markets were shut on Wednesday for Guru Nanak Jayanti. The weighted average call rate was 5.40%, similar to 5.42% on Tuesday. The weighted average rate in the wider triparty repo market, which includes mutual funds, fell to 5.13% Thursday from 5.20% in the previous trading session.

The central bank's net absorption from the banking system – a proxy for liquidity surplus – was INR 2.11 trillion on Wednesday, the highest since Sept. 14. The net absorption is up from INR 2.09 trillion Tuesday and INR 1.75 trillion Monday. The liquidity surplus rose further due to the coupon payment of two gilts since Tuesday, while being buoyed earlier by the government's payments for salaries and pensions, dealers said.

Meanwhile, the impact of the RBI's dollar sales to protect the rupee has passed without having too much of an impact on liquidity, likely because the central bank sterilised some of its spot dollar sales by selling forward dollars, dealers said. Payments for large initial public offerings have also gone through without impacting money market rates, unlike in October, as the excess liquidity ensured that there were not too many banks borrowing in either the call or triparty repo market, dealers said.

Some traders speculated that the RBI's bond purchases in the secondary market had also added to liquidity, and which is why the central bank was allowing the triparty repo rate to fall below the Standing Deposit Facility rate consistently, dealers said. According to Clearing Corp. of India data, 'others' have net bought INR 142 billion of gilts since Monday. The category includes the RBI, insurers and provident funds – the latter two of which have not been active in the market this week, dealers said. 

"Maybe the reason they are not conducting VRRR (variable rate reverse repo auction) is because they are infusing liquidity through OMOs in gilts," a dealer at a private-sector bank said. "The entire process of liquidity management right now is confusing – what levels they are targetting, where liquidity is going on a week-to-week basis – nobody in the market has a good idea of what their (the RBI's) thought process is."

On Friday, payments for tax-deducted-at-source and excise duty will drain around INR 600 billion from the banking system, which could lead to the call rate being anchored near the repo rate in early trade, dealers said. On the other hand, the repayment of the 5.15%, 2025 bond and its coupon on Sunday will add over INR 1 trillion to the banking system in durable liquidity.

OUTLOOK

The three-day call money rate may open near the RBI's repo rate Friday due to early demand for funds from primary dealerships, dealers said. Scheduled outflows of around INR 600 billion for tax payments may prevent the weighted average triparty repo rate from falling below the Standing Deposit Facility rate.

During the day, the call money rate is seen in the range of 4.90-5.60%, dealers said. Activity by banks and mutual funds in initial public offerings may lead to volatility in money-market rates, dealers said.

CALL RATE

4.95%--Thursday's close for one-day loans

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

4.95%--Tuesday's close for two-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Near RBI's repo on early demand; liquidity surplus widens

MUMBAI – The interbank call money rate Thursday traded around the Reserve Bank of India's repo rate of 5.50% on early demand for funds and steady credit disbursal, dealers said. Rates are expected to cool during the day due to a widening liquidity surplus in the banking system, they said.

At 0930 IST, the one-day call rate was at 5.45%, with the weighted average call rate at 5.47%, against the close of 4.95% for two-day loans Tuesday. Money markets were shut on Wednesday on account of Guru Nanak Jayanti. The triparty repo rate was trading at 5.20% with the weighted average rate at 5.22%.

The central bank's net absorption from the banking system – a proxy for liquidity surplus – was INR 2.19 trillion on Tuesday, up from 1.75 trillion Monday. The liquidity surplus crossed the INR 2-trillion mark Tuesday primarily due to redemptions and coupon payments of bonds. The government's month-end inflows for salary and pension payments, and the cut in the cash reserve ratio to 3.25% of net demand and time liabilities of banks, which came into effect Saturday, also increased the liquidity surplus by over a INR 1 trillion since last Friday.

"Liquidity in the system had increased and right now, we are in a comfortable zone," a dealer at a state-owned bank said. "In individual bank levels also, the position has improved, though there are still some smaller banks which may have some crunch."

Demand from banks and primary dealers was firm in early trade. Meanwhile, market participants also borrowed funds as they bid for initial public offerings, which has tied up some funds from the system liquidity, dealers said.

Liquidity in the system is expected to remain comfortable this week with no major outflows scheduled until Friday, dealers said. Outflows due to payment of excise duty and tax deducted at source are expected to drain some liquidity from the system by the end of the week, but are unlikely to push the triparty repo rate above the repo rate, dealers said.  (Srijita Bose) End

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

Edited by Ashish Shirke

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