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Informist, Friday, Nov. 7, 2025

By Cassandra Carvalho

MUMBAI – The three-day interbank call money market rate ended below the Reserve Bank of India's repo rate of 5.50%, but above the Standing Deposit Facility rate, as the surplus liquidity in the banking system improved, but demand for funds due to initial public offerings, payments for tax deducted at source and excise duty and credit disbursements prevented rates from easing further, dealers said. 

The three-day call rate ended at 5.40%, higher than Thursday's 4.95% close for one-day loans. The weighted average call rate was 5.39%, similar to 5.40% on Thursday. The weighted average rate in the wider triparty repo market, which includes mutual funds, rose to 5.16% from 5.13% in the previous trading session.

"There were some IPOs today also, and we had outflows for excise duty, so some demand was there," a dealer at a private sector bank said. "But overall liquidity, even at the individual bank level, has turned comfortable and many have returned on the lending side, so rates are supported." Scheduled outflows of around INR 600 billion for tax payments prevented the weighted average call money rate from falling below the Standing Deposit Facility rate. Payments for large initial public offerings also kept demand for funds elevated, dealers said.

The central bank's net absorption from the banking system – a proxy for liquidity surplus – was INR 2.32 trillion on Thursday, up from INR 2.11 trillion the previous day. Payments for tax deducted at source and excise duty likely drained around INR 600 billion from the banking system Friday, dealers said. However, repayment of the 5.15%, 2025 bond and coupon payment on Sunday will add over INR 1 trillion to the banking system in durable liquidity. Further, traders speculate that the central bank is purchasing gilts in the secondary bond market. 

"Every day, whatever outflows are there are being compensated by some inflows or the other," a dealer at a state-owned bank said. "Ever since Oct. 31, when we were expecting a VRR (variable rate repo auction) and it didn't come, I think since then, the RBI has let go of the liquidity, liquidity will be manageable in the system. They will come with VRRR (variable rate reverse repo auction), but we don't know when."

With money market rates easing, traders took the opportunity to realign the rest of the yield curve with the lower rates, dealers said. The overnight Mumbai Interbank Offered Rate was set at 5.44% Friday, down from 5.46% Thursday. Data from Clearing Corp. of India showed that 'others' – a category that includes the central bank, provident funds, and insurers – have net bought INR 205.47 billion worth of gilts in the secondary market this week.

OUTLOOK

The call market is closed on Saturday. On Monday, the one-day call money rate may open below the RBI's repo rate due to low demand for funds as the liquidity is in comfortable surplus with no significant outflows, dealers said. Primary dealers may borrow in early trade to pay INR 320 billion for Friday's auction for the 6.48%, 2035 gilt. 

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

5.40%--Friday's close for three-day loans

5.45%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Below RBI's repo rate as liquidity surplus widens further

MUMBAI – The three-day interbank call money rate traded below the Reserve Bank of India's repo rate of 5.50% as the liquidity surplus widened further, dealers said. Rates are expected to remain near the repo rate due to demand for funds and outflows for payments due to excise duty, dealers said.

At 0948 IST, the three-day call rate was at 5.45%, with the same weighted average rate, against a close of 4.95% for one-day loans on Thursday. The triparty repo rate at the same time was at 5.19%, with the same weighted average rate. 

"Liquidity in the system is good and though today there will be some demand for TDS (tax-deducted-at-source) and excise duty, I dont think rates will rise from here," a dealer at a state-owned bank said. "There is no other major outflow and we should see some inflows due to redemption of bonds."

The central bank's net absorption from the banking system – a proxy for liquidity surplus – was INR 2.32 trillion on Thursday, up from INR 2.11 trillion on Wednesday. Banks kept cash balances of INR 7.90 trillion with the RBI on Thursday, against an average daiy requirement of INR 7.97 trillion for the fortnight ending Nov. 14. This was largely to park cash for payments for tax-deducted-at-source and excise duty, dealers said. 

On Friday, payments for tax-deducted-at-source and excise duty will drain out 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. Steady demand for credit disbursals may also limit fall in rates, they said. 

However, liquidity in the system is expected to remain comfortable despite the outflow, dealers said. The RBI has so far not conducted any variable rate reverse repo auction to drain any liqudity from the system, which is also expected to keep rates from rising significantly above the repo rate, they 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. (Srijita Bose) 

End

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

Edited by Saji George Titus

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