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Informist, Wednesday, Dec. 10, 2025

By Aaryan Khanna

MUMBAI – The interbank call money rate ended near the Reserve Bank of India's policy repo rate of 5.25% Wednesday as demand for funds from banks was limited amid a comfortable liquidity surplus. Banks were able to fulfil their liquidity needs through mutual funds in the triparty repo market, capping the call money rate near the repo rate.

The one-day call rate ended at 5.20%, the same as the previous two days. The weighted average call rate was 5.20% Wednesday, up from 5.19% the previous day. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.11% against 5.09% on Tuesday. Trade volumes exceeded INR 200 billion for the third straight session.

The central bank's net absorption from the banking system--a proxy for the liquidity surplus--was INR 1.85 trillion Tuesday, up from INR 1.51 trillion Monday. The rise was likely due to government spending and banks further reducing their cash balances with the RBI to park them in the Standing Deposit Facility window, dealers said.

As of Tuesday, cash balances of banks with the RBI were INR 7.12 trillion, down from INR 7.19 trillion Monday and against the requirement of INR 7.40 trillion for the fortnight ending Friday. Banks were in no hurry to make up the shortfall 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, dealers said.

Payments to the government for advance tax mid-month are likely to keep demand from banks high in the coming days. 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 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 Thursday, the one-day call money rate may open at the RBI's repo rate of 5.25% on early demand for funds. 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.

Traders expect the RBI to hold off on liquidity fine-tuning measures through a variable rate repo or reverse repo operation until Friday. However, the central bank may conduct a VRR auction Friday, or next week, due to banks' liquidity requirements amid advance tax outflows worth around INR 1.5 trillion Monday.

CALL RATE

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

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: At RBI repo rate on early demand for funds; mkt divided on VRRR

MUMBAI – The one-day interbank call money rate was at the Reserve Bank of India's repo rate of 5.25% Wednesday due to early demand for funds from primary dealerships, dealers said. They expect rates to remain around the repo rate and trade similar to Tuesday on surplus liquidity in the banking system. 

At 0940 IST, the one-day call rate was at 5.25%, up from Tuesday's close of 5.20%. The weighted average call rate was 5.25%, up from 5.19% Tuesday. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.10% against 5.09% Tuesday.

The central bank's net absorption from the banking system--a proxy for the liquidity surplus--was INR 1.85 trillion Tuesday, up from INR 1.51 trillion Monday. "There must be a few inflows from government's spending (because of which liquidity increased slightly)," a dealer at a state-owned bank said. 

Dealers do not see any major inflows or outflows for the day and expect rates to remain around the repo rate, majorly towards the RBI's standing deposit facility. A few dealers expect the RBI to announce an overnight variable rate reverse repo auction Friday worth INR 500 trillion. "Still expecting a VRRR till this weekend (before outflows for GST payments and advance tax payments start next week)," a dealer at another state-owned bank said. 

However, a few dealers also do not expect any VRRR this week as they see the current liquidity surplus comfortable for the reporting Friday and weekend spending. As of Tuesday, cash balances with the RBI were INR 7.13 trillion, against the requirement of INR 7.40 trillion for the fortnight ending Friday.       

In the coming days, payments to the government for GST and advance tax will drain out liquidity in the banking system, keeping rates higher. Most market participants expect the RBI to announce a variable rate repo auction of INR 500 billion to INR 1 trillion next week. 

However, a few expect that the outflow pressure next week will be offset by the RBI's government bond buys worth INR 500 billion through an open-market operation auction Thursday and a $5 billion dollar-rupee buy-sell swap auction next week.  (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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