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Informist, Tuesday, Dec. 9, 2025

By Aaryan Khanna

MUMBAI – The interbank call money rate ended near the Reserve Bank of India's policy repo rate of 5.25% Tuesday as the liquidity surplus fell after payments for excise duty and settlements of the central bank's foreign exchange operations. Banks were able to fulfil their liquidity needs through mutual funds in the triparty repo market, capping the call money rate at the repo rate.

The one-day call rate ended at 5.20%, the same as on Monday. The weighted average call rate was 5.19% Tuesday, the same as the previous day. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.09% against 5.08% on Monday.

The central bank's net absorption from the banking system--a proxy for the liquidity surplus--was INR 1.51 trillion Monday, down from INR 2.15 trillion Sunday. Dealers attributed this fall in liquidity to outflows for excise duty payments and direct tax payments and a few corporate outflows.

Liquidity was even tighter than the headline number suggested. As of Monday, cash balance with the RBI was INR 7.19 trillion, against the requirement of INR 7.40 trillion for the fortnight ending Friday. Banks were in no hurry to make up the shortfall though as they were on average maintaining a higher cash balance than regulatory requirements in this fortnight, which began with the last tranche of the RBI's cash reserve ratio cut coming into effect.

Payments to the government for advance tax mid-month are likely to keep demand from banks high in the coming day. However, the RBI's government bond buys worth INR 500 billion through an open market operation auction will be conducted Thursday and settled Friday, adding durable liquidity into the banking system that may offset some of the outflows, dealers said. The central bank may also announce a short-term variable rate repo auction of around INR 500 billion on Friday or Monday to keep rates anchored near the repo rate instead of allowing them to top that level.

"The government will sometimes spend mid-month in these quarter-ending months to bring back some of the advance tax hit," a dealer at a state-owned bank said. "Hopefully, that will be the case this time as well, otherwise the RBI's OMO and VRR are the only hope next week."

The RBI has also announced a liquidity infusion through a three-year, $5 billion dollar-rupee buy-sell swap auction next week, which will settle on Dec. 18 and add about INR 450 billion of durable liquidity. Advance tax payments and goods and services tax payments will together drain over INR 2.5 trillion of banking system liquidity between Dec. 15 and Dec. 22, dealers said.

OUTLOOK

On Wednesday, the one-day call money rate may open at the RBI's repo rate of 5.25% on early demand for funds after the liquidity surplus shrunk due to tax payments to the government. The first tranche of the RBI's open market operation to buy bonds scheduled for Thursday will infuse INR 500 billion of liquidity Friday if the central bank buys the entire notified amount. During the day, the one-day call money rate is seen in a range of 4.50-5.25%, dealers said.

CALL RATE

5.20%--Tuesday's close for one-day loans

5.25%--Tuesday's open for one-day loans

5.20%--Monday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Near RBI's repo rate on early demand for funds, low liquidity

MUMBAI – The one-day interbank call money rate was near the Reserve Bank of India's repo rate of 5.25% Tuesday due to early demand for funds from primary dealerships, dealers said. They expect rates to remain near the repo rate during the day on fall in liquidity in the banking system. Dealers expect rates in the tri-party repo market to remain around 5.20% on reporting Friday requirements this week and low liquidity.

At 0959 IST, the one-day call rate was at 5.20%, flat from Monday's close. The weighted average call rate was 5.25%, up from 5.20% Monday. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.08%, similar to that in the previous session.

The rates in the tri-party repo market may not breach the 5.20% level. Currently, there is demand from primary dealerships and a few private banks in the TREPS market, dealers said. "Mutual funds are lending in the treps (tri-party repo market) currently," 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 1.51 trillion Monday, down from INR 2.15 trillion Sunday. Dealers attributed this fall in liquidity to outflows for excise duty payments and direct tax payments and a few corporate outflows. As of Monday, cash balances with the RBI was INR 7.19 trillion, against the requirement of INR 7.40 trillion for the fortnight ending Friday. 

"The major outflows were from excise duty and a few smaller ones which led to this fall (in liquidity)," a dealer at another state-owned bank said. The dealer expects liquidity to remain low on major outflows scheduled to start next week. 

"We have advanced tax outflows and GST (payments) next week which will be more than 2.5 lakh crores (INR 2.5 trillion). We have OMO and swaps which will infuse liquidity, but net of both (outflows and inflows through OMO and swaps) is negative (more outflows than inflows)," the dealer said. "Liquidity might move to deficit too," the dealer added.  

The RBI will conduct open market bond purchases of INR 1.00 trillion, along with a three-year dollar-rupee buy-sell swap of $5 billion, in December, to inject durable liquidity into the banking system, RBI Governor Sanjay Malhotra said in his statement at the outcome of the Monetary Policy Committee meeting Friday. The RBI specified that the OMO purchases would be in two tranches. The RBI will conduct an INR-500-billion OMO purchase auction on Thursday as well as on Dec. 18. The buy-sell swap will held on Dec. 16.  (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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