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Informist, Friday, Dec. 5, 2025

By Aaryan Khanna

MUMBAI – The interbank call money rate ended above the Reserve Bank of India's new repo rate of 5.25% as traders took time to adjust to lower rates after the Monetary Policy Committee unanimously cut the policy rate by 25 basis points Friday. Liquidity continued to be in a comfortable surplus as banks parked INR 1 trillion with the central bank at the three-day variable rate reverse repo auction, dealers said.

The three-day call rate ended at 5.35% against Thursday's close of 5.45% for one-day loans. The weighted average call rate was 5.33%, down from 5.43% Thursday. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.15%, also down from 5.25% in the previous session.

The central bank's net absorption from the banking system--a proxy for the liquidity surplus--was INR 2.66 trillion Thursday, higher than INR 2.56 trillion Wednesday. After the Monetary Policy Committee cut the repo rate, the RBI announced durable liquidity infusions in December through INR 1-trillion of open market operations to buy bonds and a $5 billion dollar-rupee buy-sell swap.

RBI Governor Sanjay Malhotra said banking system liquidity had been in a surplus of 0.6-1.0% of banks' net demand and time liabilities since the October policy and is likely to rise to over 1% after the liquidity infusions. However, traders expect these auctions--scheduled between Thursday and Dec. 18--to help offset the liquidity hit from advance tax payments in mid-December as well as goods and services tax outflows after Dec. 20.

Malhotra spoke extensively on liquidity management after the outcome of the rate-setting panel's meeting. He said the RBI's revised liquidity management framework had allowed the central bank to conduct liquidity operations with greater flexibility to manage frictional liquidity. The RBI aims to ensure its operating target, the weighted average call money rate, remains near the repo rate. He also clarified that durable liquidity infusions via open market operations and frictional liquidity drains such as through VRRR auctions were consistent with the RBI's current framework.

On the day of announcing the OMOs, the RBI also conducted a three-day, INR 1-trillion VRRR auction. Banks offered INR 1.08 trillion to the RBI at the auction and the central bank accepted the notified amount at a cut-off rate of 5.24%. Two VRRR operations worth nearly INR 1.3 trillion matured earlier Friday.

OUTLOOK

On Saturday, the two-day call money rate may open below the RBI's repo rate of 5.25%, given the comfortable liqudity surplus. Trade volumes are likely to be low, as is usual on Saturdays, as banks met their cash requirement by Friday.

During the day, the two-day call money rate is seen in a range of 4.50-5.25%, dealers said. Traders expect liquidity conditions to remain comfortable next week despite excise duty and tax-deducted-at-source payments, with the first tranche of the RBI's open market operation to buy bonds scheduled for Thursday.

CALL RATE

5.35%--Friday's close for three-day loans

5.40%--Friday's open for three-day loans

5.45%--Thursday'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; MPC meet outcome eyed

MUMBAI – The inter-bank call money rate was below the Reserve Bank of India's repo rate Friday on ample liquidity surplus in the banking system, dealers said. The central bank's net absorption from the banking system – a proxy for liquidity surplus – was INR 2.66 trillion Thursday, higher than INR 2.56 trillion Wednesday.  

At 0928 IST, the one-day call rate was at 5.40%, down from Thursday's close of 5.45%. The weighted average call rate was 5.40%, also lower than 5.43% Thursday. At the same time, the weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.14%, down from 5.25%.

Market participants now await the Reserve Bank of India's Monetary Policy Committee decision at 1000 IST where some traders expect the central bank to cut rates. "If RBI cuts rates by 25 bps (basis points), then rates during the day will trade lower. If we see, treps (tri-party repo) rates are already at 5.12%, which says that market is expecting a 25 bps rate cut," a dealer at a state-owned bank said.  

The RBI has conducted three VRRR auctions so far this week, to drain excess liquidity from the banking system. The fourth auction for the week will be a three-day VRRR auction for INR 1 trillion Friday. 

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. At Thursday's VRRR auction, the RBI took all INR 723.77 billion of offers. The cut-off at all three auctions was set at 5.49%.  (J. Navya Sruthi)  End

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

Edited by Rajeev Pai

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