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Informist, Wednesday, Dec. 3, 2025

By Cassandra Carvalho

MUMBAI – The interbank call money rate Wednesday ended below the Reserve Bank of India's Standing Deposit Facility rate, due to ample liquidity surplus in the banking system, with no major outflows. Post market hours, the central bank said it would hold an overnight variable rate reverse repo auction of INR 750 billion Friday. Several dealers were expecting such an auction to be held Wednesday itself. Even with a VRRR, due to the surplus liquidity, money market rates are not seen rising higher than the repo rate, dealers said. Traders were hoping that the RBI would hold an overnight VRRR, since several traders were not comfortable with parking funds at a VRRR for more than a day.

"Banks will want a single-day VRRR, more than one day is not comfortable to park," a dealer at a state-owned bank said. "VRRR has come because redemption is there tomorrow (Thursday). But even then, there is so much surplus no one will be affected." The redemption of the RBI's two-day VRRR auction of INR 500.17 billion is due Thursday.

The one-day call rate ended at 4.95% for the fourth consecutive day. The weighted average call rate was 5.37%, up from 5.34% Tuesday. The weighted average rate in the wider triparty repo market, which includes mutual funds, was 5.17%, slightly lower than 5.18% in the previous session.

As the weighted average triparty repo rate eased further below the SDF rate, banks took advantage of the spread between the two rates by borrowing at lower rates in TREPS and parking those funds at SDF, dealers said.

The central bank's net absorption from the banking system – a proxy for liquidity surplus – was INR 2.71 trillion Tuesday, higher than INR 2.59 trillion Monday. Tuesday's liquidity surplus in the system was the highest since Sept. 11, when it was INR 2.85 trillion.

Focus is now on the Monetary Policy Committee's decision Friday. The rate-setting panel's three-day meet began Wednesday. Some traders expect the MPC to cut rates by 25 basis points, dealers said, though most traders are uncertain about a rate cut. The liquidity condition in the latter half of the month, dealers said, may warrant support from the RBI through variable rate repo auctions or through more permanent measures such as open market purchase of gilts through auction, which will infuse durable liquidity, dealers said. Traders expect the RBI to announce a calendar of OMO auction purchases to the tune of INR 2.00 trillion Friday, to be held end of the month and in Jan-Mar, dealers said.

OUTLOOK

On Thursday, the one-day call money rate may open near the RBI's repo rate ahead of the variable rate reverse repo auction. However, rates may ease later in the day due to surplus liquidity in the banking system and lack of major outflows.

The RBI will Thursday conduct an overnight VRRR auction for INR 750 billion between 0930 IST and 1000 IST. The redemption of the RBI's two-day VRRR auction of INR 500.17 billion is due Thursday. During the day, the one-day call money rate is seen in a range of 4.85-5.50%, dealers said. 

CALL RATE

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

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Below repo rate on ample liquidity surplus; mkt sees another VRRR

MUMBAI – The inter-bank call money rate was below the Reserve Bank of India's repo rate Wednesday due to ample liquidity surplus in the banking system and lack of outflows, dealers said. They expect rates to remain below the RBI's repo rate and expect another one- or two-day variable rate reverse repo auction to drain surplus liquidity.

At 1030 IST, the one-day call rate was at 5.40%, up from Tuesday's close of 4.95%. The weighted average call rate was 5.40%, also higher than 5.34% Tuesday. At the same time, the weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.20%, up from 5.18%.

"Call rate will trade similar to yesterday (Tuesday). Till RBI announces another VRRR, rates will remain in a range," a dealer at a major state-owned bank said. The dealer expects another one- or two-day VRRR of INR 500 billion or INR 750 billion before the Monetary Policy Committee decision Friday due to ample liquidity surplus in the banking system.

The central bank's net absorption from the banking system – a proxy for liquidity surplus – was INR 2.71 trillion Tuesday, higher than INR 2.59 trillion Monday. Tuesday's liquidity surplus in the system was the highest since Sept. 11, when liquidity was INR 2.85 trillion. 

The increase in liquidity is equal to the decline in cash balances with the RBI, the dealer said. Cash balances with the RBI as of Tuesday were INR 7.32 trillion, down from INR 7.44 trillion Monday.

A dealer at another state-owned bank said there were fewer chances of a VRRR Wednesday as the effective liquidity with banks after the ongoing liquidity operations by the RBI would be around INR 1.7 trillion. "If rates in TREPS market fall below 5.18%, then we can expect a VRRR," the dealer said. 

This week, the RBI conducted two VRRR auctions. The central bank Monday conducted a four-day VRRR auction at which it took all INR 569.35 billion of offers, and another auction on Tuesday, a two-day VRRR, at which it took INR 500.17 billion of offers. It had 5.49% as the cut-off at both the auctions. (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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