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Informist, Tuesday, Nov. 25, 2025

By Cassandra Carvalho

MUMBAI – The one-day interbank call money rate ended below the Reserve Bank of India's repo rate Tuesday, and the weighted average call rate fell 9 basis points from Monday due to inflows from the central government for welfare schemes, and as outflows for goods and services tax ended, dealers said.

Inflows into the banking system due to government expenditure likely offset some of the outflows for goods and services tax this week, dealers said. Government expenditure for schemes started early this week, and its month-end expenditure for salaries and pensions is expected to support banking system liquidity nearing the end of the week, dealers said.

"There is enough liquidity in the market, I think rounds of government spending must have come," a trader at a primary dealership said. "I was expecting the same level (money market rates) because yesterday (Monday) the levels were the same, only call money was a little on the higher side. By this weekend, the levels will be the same (as current), for this entire week."

Traders expect total outflows of around INR 200 billion Tuesday and Wednesday as settlement of the RBI's spot dollar sales in the foreign market Friday and Monday to support the rupee. Trades in the foreign exchange spot market are settled on a 'T+2' basis. However, the quantum is seen small and may not make a material impact on systemic liquidity and money market rates.

There are mixed views on the RBI's likely liquidity management operation in the near future. Some dealers expect a variable rate repo auction to be held Friday, others expect a variable rate reverse repo auction, while some dealers do not expect any operation. Those in favour of a VRR auction said such an operation would be needed to meet fortnightly reporting requirements for Friday, and mutual funds may not lend too aggressively due to month-end redemption pressure.

Those who expect a VRRR auction said the Centre's month-end expenditure would add to the surplus liquidity in the banking system, ahead of the final tranche of inflows from the RBI's four-stage cut in the cash reserve ratio due Saturday. The cash reserve ratio will be cut to 3.00% Saturday, from 3.25% currently, and is expected to release funds worth around INR 600 billion. Some dealers do not expect any operations since the fund requirements and inflows may offset each other near the end of the week.

"Banks are lending on a term basis now because they have funds to lend. They're targeting cross-quarterly and cross-monthly lending, though most of it (the tenure of the lending) is before GST payments, so by Dec. 19," a dealer at a private sector bank said. "Mostly PDs (primary dealerships) are borrowing through this term-basis." Eleven trades worth a total of INR 14.26 billion were conducted in the 15-day call money tenure Tuesday.

The one-day call rate ended at 5.44%, down from Monday's close of 5.50% for one-day loans. The weighted average call rate was 5.43%, down from 5.52% Monday. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.25%, down from 5.31% in the previous trading session. The central bank's net absorption from the banking system – a proxy for the liquidity surplus – was INR 1.28 trillion Monday, marginally lower than INR 1.51 trillion Sunday, due to payment of INR 300 billion for the gilt auction held Friday.

OUTLOOK

* On Wednesday, the one-day call money rate may open near the RBI's repo rate on early demand for funds from primary dealerships.

* During the day, the one-day call money rate is seen in a range of 4.85-5.60%, dealers said.

CALL RATE

5.44%--Tuesday's close for one-day loans

5.50%--Tuesday's open for one-day loans

5.50%--Monday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: At repo rate on early demand for funds; no large outflows seen

MUMBAI – The inter-bank call money rate was at the Reserve Bank of India's repo rate due to early demand for funds from primary dealerships, market participants said. Dealers expect rates to remain at or below the repo rate for the rest of the week as the large scheduled outflows for the month have ended and government spending would add to banking system liquidity later this week.  

At 1030 IST, the one-day call rate was at 5.50%, steady from Monday's close. The weighted average call rate was also 5.50%, down from 5.52% Monday. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.25%, down from 5.31% the previous day. 

"Rates will fall to 5.40%-level and TREPS (triparty repo) will be below SDF (Standing Deposit Facility rate) at 5.10-5.15% because of surplus liquidity and low demand for funds," a dealer at a state-owned bank said. The central bank's net absorption from the banking system – a proxy for the liquidity surplus – was INR 1.28 trillion Monday, marginally lower than INR 1.51 trillion Sunday. The lower surplus was likely due to outflows worth INR 300 billion for the payment on the weekly gilt auction, settled on Monday. 

Despite the fall in the system's liquidity, dealers say it is at a comfortable level as the reduction was less than expected. The market is also watching out for demand from banks for initial public offerings, a dealer at a private sector bank said.  

"Usually, liquidity after GST outflows falls to 50,000 crores (INR 500 billion), but it is still above one lakh crore (INR 1 trillion) as there was some spending from government's side," said the the dealer quoted earlier. "Our bank has received some subsidies from government on PM KISAN (Pradhan Mantri Kisan Samman Nidhi) scheme (which had offset the GST outflows impact)," the dealer said.

Government's month-end spending, especially on subsidies, may add around INR 500 billion to the banking system starting Tuesday, dealers said. The last tranche of the cash reserve ratio cut for banks will also free up around INR 650 billion Saturday for banks to park in the standing liquidity facility window.

As these inflows add to liquidity, traders expect the RBI to conduct a seven-day variable rate reverse repo operation on the maturity of a variable rate repo operation Friday. At last week's seven-day VRR, RBI had received all INR 163.63 billion, against the notified amount of INR 500 billion. (J. Navya Sruthi and Aaryan Khanna)

End

US$1 = INR 89.22

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

Edited by Ashish Shirke

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