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Informist, Tuesday, Nov. 11, 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 liquidity remained in a comfortable surplus, 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 4.90%, lower than Monday's close of 4.95%. The weighted average call rate was 5.34%, flat against Monday. The weighted average rate in the wider triparty repo market, which includes mutual funds, fell slightly to 5.16% from 5.19% in the previous trading session.

The central bank's net absorption from the banking system--a proxy for liquidity surplus--was INR 2.01 trillion Monday, down from INR 2.43 trillion Sunday. Outflows of INR 320 billion as settlement for payment of Friday's gilt auction likely drained liquidity Monday. Around half of the liquidity influx of nearly INR 1 trillion from the redemption of the 5.15%, 2025 bond on Sunday had also been netted out by excise duty and tax deducted at source payments, as well as likely RBI operations in the foreign exchange market, dealers said. 

"It could be the case that the RBI has taken the opportunity to take delivery of one of their buy/sell swaps," a dealer at a private-sector bank said. "The outright spot (dollar) sales shouldn't amount to this much and banks are still drawing down cash." Banks continued to have a shortfall in their cash balances parked with the RBI to meet statutory required. Monday's holdings to maintain the cash reserve ratio of 3.25% of net demand and time liabilites was at INR 7.71 trillion against the INR 7.97 trillion average required for the fortnight. 

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 over INR 200 billion of gilts in the secondary market, with 'Others' data showing net purchases worth INR 239 billion in the week to Monday, according to the Clearing Corp. of India. Currently, these were not having a material impact on liquidity conditions and were instead seen as a move to cap gilt yields, dealers said.

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.

OUTLOOK

On Wednesday, 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

4.90%--Tuesday's close for one-day loans

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Below repo; VRRR view ebbs as weighted avg call seen above SDF

MUMBAI – The one-day interbank call money rate traded below the Reserve Bank of India's repo rate Tuesday due to lack of significant outflows amid ample liquidity in the banking system, dealers said. The rates in the triparty repo market largely traded below the Standing Deposit Facility rate. Money market rates may cool further in the day due to low demand for funds, dealers said. Expectations of the RBI conducting a variable rate reverse repo auction have reduced as demand for funds is likely to limit a fall in the weighted average call money rate to below the Standing Deposit Facility rate, dealers said. The RBI in September released a revised liquidity management framework, which said that the overnight weighted average call rate would continue to be the operating target of monetary policy. RBI Governor Sanjay Malhotra in July said the central bank's effort will be to keep the call money rate near the policy repo rate.   

Despite a lack of major outflows from the banking system until payments for goods and services tax start next week, dealers do not expect the weighted average call money market rate to fall below the RBI's Standing Deposit Facility rate. Demand for funds for credit disbursements has been robust so far in the December quarter, though some dealers said credit growth is likely to plateau in November after spiking in October, and is likely to rise again for quarter-end requirements next month. The year-on-year growth in bank loans rose to an eight-month high of 11.5% as of Oct. 17, driven by the festival season and consumption boost from the lower GST rates. Deposit growth, on the other hand, slowed down to 9.5% in the fortnight ended Oct. 17, as per latest data released by the Reserve Bank of India.

"Actually, what is happening is that there's credit growth also going into banks, so there will be unsecured borrowing also, so that level will be matched, it (the overnight weighted average call rate) will not go below SDF," a dealer at a state-owned bank said. 

As for the central bank's liquidity management operations, most traders do not expect the RBI to conduct a variable rate reverse repo auction until GST payments are complete, dealers said.

"If (weighted) average call rate fall below SDF, then maybe RBI will come up with a VRRR but I don't think that will happen," a dealer at another state-owned bank said. "This week and next week tax payments and some other outflows are there, so RBI won't conduct a VRRR." 

At 0913 IST, the one-day call rate was at 5.40%, with a weighted average rate of 5.40%, against a close of 4.95% for one-day loans on Monday. The weighted average rate on Monday was 5.34%. The triparty repo rate at the same time was 5.26%, with a weighted average rate of 5.19%. The weighted average triparty repo rate was 5.19% on Monday. The central bank's net absorption from the banking system – a proxy for liquidity surplus – was INR 2.01 trillion Monday, down from INR 2.43 trillion Sunday. Outflows of INR 320 billion as settlement for payment of Friday's gilt auction likely drained liquidity Monday. 

Early demand for funds from primary dealerships and some private sector banks kept rates on the higher side of the recent trading range at market open, dealers said. Call rates are likely to trade in the range of 5.35-5.40% and the triparty repo rate is seen at 5.15-5.25% for the day, dealers said.  (Cassandra Carvalho)

End

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

Edited by Akul Nishant Akhoury

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