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Informist, Monday, Nov. 10, 2025

By Aaryan Khanna

NEW DELHI – The interbank call money rate ended well below the Reserve Bank of India's Standing Deposit Facility rate of 5.25% as the liquidity surplus climbed to a near two-month high, dealers said. Even demand for funds for investment into initial public offerings and government bonds was met early in the day below the repo rate. 

The one-day call rate ended at 4.95%, lower than Friday's close of 5.40% for three-day loans. The weighted average call rate was 5.34%, down from 5.39% Friday. The weighted average rate in the wider triparty repo market, which includes mutual funds, rose slightly to 5.19% from 5.16% in the previous trading session.

The central bank's net absorption from the banking system--a proxy for liquidity surplus--was INR 2.43 trillion Sunday, up slightly from Friday and Saturday and the most since Sept. 14. Coupon payments and the redemption of the 5.15%, 2025 bond were scheduled to add a net INR 817.01 billion to the banking system between Saturday and Monday despite the INR-320-billion outflow as payment for the government bond auction.

The liquidity surplus had not increased as much likely due to some outflows for tax deducted at source and excise duty payments to the government, dealers said. The bond redemption will also reflect in RBI data only on Tuesday, but helped bring down money market rates on Monday as banks deployed the liquidity in the interbank market. 

"Liquidity is in a good spot right now, and banks have a lot of cash after the redemption (of the 5.15%, 2025 bond) on Nov. 9," a dealer at a primary dealership said. "The best part is, the RBI is not doing any VRRRs (variable rate reverse repo auctions), so funding costs have really come down and are well behaved."

The central bank has not conducted a VRRR auction since Oct. 15, largely as systemic liquidity has been tight. The liquidity surplus is higher than the INR 1.3 trillion surplus when the RBI had last conducted the short-term operation to drain liquidity. However, the RBI is also seen encouraging lower money market rates in order to push credit growth after the festival season and the government's cut in goods and services tax rates.

Moreover, the central bank's speculated government bond purchases have been adding durable liquidity to the banking system over the past week, dealers said. The RBI is speculated to have bought around INR 180 billion of gilts last week in the secondary market, with 'Others' data showing net purchases worth INR 205.47 billion between Monday and Friday, according to the Clearing Corp. of India. The segment includes the RBI, provident funds and insurers. As it begins infusing durable liquidity, the central bank may not want to send a signal to the market by absorbing frictional liquidity through VRRRs, dealers said. 

OUTLOOK

On Tuesday, 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. Some traders expect the RBI to announce a variable rate reverse repo operation to prop up money market rates to near the repo rate of 5.50%.

During the day, the call money rate is seen in the range of 4.80-5.50%, 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%--Monday's close for one-day loans

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call:Below repo; surplus liquidity at near-2-mo high, no major outflows

MUMBAI – The one-day interbank call money rate last traded below the Reserve Bank of India's repo rate due to lack of significant outflows, and as the liquidity surplus in the banking system improved to its highest in nearly two months, dealers said. The rates in the triparty repo market traded below the Standing Deposit Facility rate. Money market rates may cool further in the day due to low demand for funds, dealers said.     

At 1020 IST, the one-day call rate was 5.30%, with a weighted average rate of 5.40%, against a close of 5.40% for three-day loans on Friday. The weighted average rate on Friday was 5.39%. The call money market was shut Saturday. The triparty repo rate at the same time was 5.16%, with a weighted average rate of 5.18%. The weighted average triparty repo rate was 5.16% Friday.

The central bank's net absorption from the banking system – a proxy for liquidity surplus – was INR 2.41 trillion Friday, up from INR 2.32 trillion on Thursday. This is the highest liquidity surplus since Sept. 14. Lack of any significant outflows is expected to keep liquidity in a comfortable surplus this week, dealers said. While announcing the April monetary policy, RBI Governor Sanjay Malhotra had identified banking system liquidity in excess of 1% of banks' net demand and time liabilities as a comfortable level for policy rate-cut transmission. According to the latest data, 1% of net demand and time liabilities would put the liquidity surplus at around INR 2.39 trillion. The liquidity surplus is likely to be aided by inflows of INR 981.78 billion as redemption of the 5.15%, 2025 gilt, which was due Sunday. Payment of INR 320 billion for gilts Monday may partially offset some of the inflows from the bond redemption, dealers said. 

Early demand for funds from primary dealerships kept rates on the higher side of the recent trading range at market open, dealers said. Some demand from banks participating in initial public offerings is also likely to limit a steep fall in rates during the day, dealers said. 

"There are several IPOs (initial public offerings) also. Banks which are participating (in IPOs), which are larger quantums of the full book issue are also borrowing in call. If there is a deficit in their liquidity, (or if) they are using their excess liquidity, they are borrowing from call," a dealer at a private sector bank said. "Which is why call rates haven't gone much lower or close to secured lending rates (TREPS rates). Consistently big book issues are going on, and Pine Labs is also tomorrow." The initial public offer of Pine Labs Ltd. opened for subscription Friday and will close Tuesday.

Focus is now on the central bank's liquidity management operations, with traders expecting the RBI to conduct a variable rate reverse repo auction if the weighted average call rate falls below 5.35-5.40%, dealers said. Some traders do not expect any VRRR in the near term since demand for IPOs and credit disbursements will limit a fall in rates even as liquidity is seen comfortable, they said. Moreover, any redemption pressure or requirements for funds from mutual funds – which are usually active lenders in the TREPS market – may push up triparty repo market rates, which would in turn push up call money market rates, they said.      

"RBI may come up with VRRR if (call) rates fall below 5.35%," a dealer from another private sector bank said.  (Cassandra Carvalho)

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

End

Edited by Akul Nishant Akhoury

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