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Informist, Wednesday, Nov. 12, 2025

By Aaryan Khanna

NEW DELHI – The interbank call money rate ended below the Reserve Bank of India's Standing Deposit Facility rate of 5.25% as liquidity remained in a comfortable surplus, dealers said. The RBI did not conduct a variable rate reverse repo auction, contrary to market expectations, as the weighted average call and triparty repo rates remained well below the policy repo rate.

The one-day call rate ended at 5.00%, against Tuesday's close of 4.90%. The weighted average call rate was 5.34%, the same as the last two days. The weighted average rate in the wider triparty repo market, which includes mutual funds, was also flat from the previous trading session at 5.16%.

The central bank's net absorption from the banking system – a proxy for liquidity surplus – was INR 2.11 trillion Tuesday, up from INR 2.01 trillion Monday. There were no significant inflows or outflows Wednesday. Some banks may have borrowed from the triparty repo market due to prevailing low rates and parked the funds at the RBI's SDF at 5.25%, earning an arbitrage, dealers said.

Banks continued to maintain a daily shortfall in their cash balances parked with the RBI to meet statutory requirements as they had held an excess earlier in the fortnight, dealers said. Tuesday's holdings to maintain the cash reserve ratio of 3.25% of net demand and time liabilities were at INR 7.75 trillion against the INR 7.97 trillion average required for the fortnight. However, the average cash balance so far in this fortnight is INR 8.04 trillion, above the requirement.

"The lower cash balances are not a discomfort. It's wrong to view them as something that banks are borrowing for," a dealer at a state-owned bank said. "It will only be on Friday that most players will look to meet those requirements. Before that, people will not hold it very high." The third tranche of the RBI's cash reserve ratio cut came into effect in the current reporting fortnight, which began Nov. 1.

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 250 billion of gilts in the secondary market, with 'Others' data showing net purchases worth over INR 300 billion between Nov. 3 and Tuesday, according to the Clearing Corp. of India. Currently, these have not had a material impact on liquidity conditions and were instead seen as a move to cap gilt yields, dealers said.

The central bank may conduct a variable rate reverse repo auction, a tool it has not used since Oct. 15, only if the weighted average call rate falls toward the SDF rate, dealers said. The market had now adjusted to transacting below the repo rate, only two weeks after the weighted average call rate was trending towards 5.60%. The RBI may prefer to keep these lower rates to encourage credit off-take, though it may drain liquidity through a short-term VRRR operation of up to INR 1 trillion if the weighted average call rate falls below the 5.25% mark, dealers said. 

OUTLOOK

On Thursday, the one-day call money rate may open below the RBI's repo rate as the liquidity is in comfortable surplus with no significant outflows, dealers said. Some traders expect the RBI to announce a VRRR 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

5.00%--Wednesday's close for one-day loans

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Below repo rate; no major inflows, outflows seen Wed

MUMBAI – The one-day interbank call money rate traded below the Reserve Bank of India's repo rate Wednesday due to lack of significant outflows or inflows amid ample liquidity in the banking system, dealers said. Rates are expected to remain largely similar to Tuesday's trading range, dealers said.   

The weighted average call money rate has not fallen to or below the RBI's Standing Deposit Facility rate since Sept. 5, barring trade on some working Saturdays. If it does fall below the SDF rate this week, traders expect the RBI to conduct a variable rate reverse repo auction of around INR 1.00 trillion, dealers said. However, some traders do not have enough stock of bonds to provide as collateral in secured lending markets and, hence, depend on the unsecured call market for funds, which limits a fall in the weighted average rate inspite of comfortable liquidity, dealers said. Primary dealerships were largely on the borrowing side in early trade Wednesday, dealers said. Demand for funds for credit disbursements and initial public offerings has also kept the weighted average rate above SDF, they said.  

"After TREPS (triparty repo market) shuts, we only have call to depend upon at end of the day, so that's why rates are higher in call," a dealer at a state-owned bank said. "And call is unsecured. Sometimes, a trader doesn't have collateral, so he can't borrow in secured markets and has to go to call."

Inflows and outflows from the RBI's intervention in the foreign exchange market have been minimal recently, and have not had a significant impact on systemic liquidity, dealers said. In the gilt market, traders speculate that the central bank is purchasing gilts on-screen on a daily basis since Nov. 3, but call money market dealers said that if true, the buys were not a large inflow, which would impact systemic liquidity. 

"The (RBI's) FX (foreign exchange market) impact is roughly maintained at the same level, nothing substantial from there," a dealer at another state-owned bank said. "The RBI is supporting the gilt market but it is not a major bearing on liquidity." The 'others' segment – which includes insurance companies, provident funds and the central bank – has net bought gilts worth INR 301.30 billion in the secondary gilt market till Tuesday from Nov. 3.

At 0911 IST, the one-day call rate was at 5.40%, with the same weighted average rate, against a close of 4.90% for one-day loans on Tuesday. The weighted average rate on Tuesday was 5.34%. The triparty repo rate at the same time was 5.10%, with a weighted average rate of 5.16%. The weighted average triparty repo rate was 5.16% on Tuesday. The central bank's net absorption from the banking system – a proxy for liquidity surplus – was INR 2.11 trillion Tuesday, up from INR 2.01 trillion Monday. (Cassandra Carvalho)  End

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

Edited by Saji George Titus

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