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Informist, Friday, Nov. 14, 2025

By Aaryan Khanna and J. Navya Sruthi

NEW DELHI – The long-awaited and yet unexpected variable rate reverse repo auction pushed up the interbank call money market rate close to the Reserve Bank of India's policy repo rate of 5.50% Friday. Robust demand from banks to meet their cash management needs on the reporting Friday also contributed to money market rates climbing from near the standing deposit facility rate earlier this week.

The RBI conducted its first variable rate reverse repo auction in nearly a month on Friday –  a three-day, INR 1-trillion operation – to absorb excess liquidity from the system. The central bank accepted all offers worth INR 573.80 billion at the auction. Traders had earlier expected the RBI to conduct such an auction, but had gotten comfortable with lower overnight rates since the central bank had refrained from announcing a VRRR earlier this week with a similar liquidity surplus. The weighted average call rates had trended towards 5.30% and the weighted average triparty rate was below the Standing Deposit Facility rate of 5.25% over the past week.

The three-day call rate ended at 5.45%, against Thursday's close of 5.30% for one-day loans. The weighted average call rate was 5.51%, up from 5.33% Thursday. The weighted average rate in the wider triparty repo market, which includes mutual funds, surged to 5.36% from 5.12% in the previous trading session.

"Today being a reporting Friday, there was tepid response to the VRRR (variable rate reverse repo) auction. So, we expect another VRRR on Monday or Tuesday of INR 1 trillion," a dealer at a state-owned bank said. "Rates are seen at previous two days' range if there is no VRRR before GST (goods and services tax) outflows." The tax outflows are due at the end of the next week, and may in fact lead to the RBI infusing short-term liquidity through a variable rate repo operation, dealers said.

Through the week, banks have maintained cash balances well below regulatory requirements, offsetting a surplus from last week. Banks can maintain cash balances as low as 90% of their requirements, but have to fulfill them back to the full amount on the reporting Friday. While the daily average cash balance in the fortnight to Thursday was INR 8.00 trillion, higher than the required INR 7.97 trillion, banks' cash holdings on Thursday were only INR 7.81 trillion. Some banks likely borrowed funds to make up their individual shortfall early in the day, pushing up the call money rate above the repo rate, dealers said.

Meanwhile, the central bank's net absorption from the banking system – a proxy for liquidity surplus – was INR 2.40 trillion Thursday, higher than INR 2.10 trillion Wednesday. Traders speculated this was due to some government spending, although others said it was likely because banks were borrowing from the triparty repo market to park at the Standing Deposit Facility. On Thursday, borrowing from the triparty repo market netted an arbitrage of over 10 basis points by parking that cash in the SDF, making it a lucrative trade, dealers said. This practice is likely to fall off in Friday's data as banks would have parked excess funds at the VRRR.

OUTLOOK

On Saturday, the two-day call money rate may be below the repo rate of 5.50%. Most banks have met their funding requirements for the weekend on Friday. As is usual on Saturdays, trade volumes are expected to be low. During the day, the call money rate is seen in the range of 4.90-5.50%, dealers said.

CALL RATE

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

5.60%--Friday's open for three-day loans

5.30%--Thursday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Ends near SDF rate on comfortable liquidity, lack of outflows

MUMBAI – The three-day interbank call money rate opened above the Reserve Bank of India's repo rate after the central bank announced a variable rate reverse repo auction of INR 1.00 trillion on Friday, which took traders by surprise, dealers said. Traders were not expecting a VRRR Friday after the RBI, contrary to traders' expectations, did not hold any such liquidity-draining measure earlier this week. Some dealers said the auction by the central bank was no surprise, but delayed. 

"...It's a good opportunity for banks to deploy funds in VRRR (variable rate reverse repo) rather than SDF (standing deposit facility)," a dealer at a state-owned bank said. With scheduled outflows for payments of goods and services tax due late next week, the dealer said, "Weighted average call rate is seen higher by 10-15 bps (basis points) next week. Today (Friday) the rates will be higher due to reporting Friday and VRRR announcement, but the actual impact might occur after GST outflows."

Dealers expect rates in the call money market during the day to trade in the range of 5.40-5.60% due to the unexpected VRRR auction. They expect rates in the triparty market to trade in a range of 5.20-5.60%. The impact of the VRRR may be offset by ample surplus liquidity in the banking system, dealers said. Traders also speculated that by holding the VRRR Friday, the central bank wanted to deter traders from creating speculative positions across markets on hopes that the central bank was loosening its control over managing overnight borrowing rates. Traders had begun pricing in lower overnight money market rates due to the lack of such an auction so far this week, dealers said. 

The central bank's net absorption from the banking system – a proxy for liquidity surplus – was INR 2.40 trillion Thursday, higher than INR 2.10 trillion Wednesday. As per rumours in the market, some government expenditure had come in, which boosted systemic liquidity Thursday, some dealers said. Others said that banks parked more funds in the Standing Deposit Facility. A recent cut in the cash reserve ratio to 3.25% from 3.50% also aided the surplus, dealers said.

"While it is reporting Friday, I do not see much impact on call rates as the CRR (cash reserve ratio) is 3.25%. Most banks have also parked in money already," a dealer from a private sector bank said. "MFs (mutual funds), insurance companies, (and) corporates are lending in TREPS. If there are 67,000 borrowers, then are around 112,000 lenders in the market, (resulting in) low demand," the dealer said.

At 0953 IST, the three-day call rate was at 5.55%, with the weighted average rate of 5.59%, against a close of 5.30% for one-day loans on Thursday. The weighted average rate on Thursday was 5.33%. The triparty repo rate at the same time was 5.40%, with a weighted average rate of 5.43%. The weighted average triparty repo rate was 5.12% on Thursday.  (Cassandra Carvalho and J. Navya Sruthi)  End

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

Edited by Ashish Shirke

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