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Informist, Tuesday, Dec. 16, 2025

By J. Navya Sruthi

MUMBAI – The one-day interbank call money rate ended above the Reserve Bank of India's repo rate of 5.25% Tuesday as outflows for advance tax payments reduced liquidity in the banking system, dealers said. Market participants expect the central bank to conduct another variable rate repo auction Wednesday to support the system's liquidity. 

The one-day call rate ended at 5.41%, up from 5.25% Monday. The weighted average call rate was 5.41%, against 5.25% the previous day. Earlier in the day, the one-day call rate rose to 5.70%, the highest since Oct. 29, when the repo rate was 5.50%. The RBI's Monetary Policy Committee has since cut the repo rate by 25 basis points to 5.25%.

The weighted average rate in the broader tri-party repo market was 5.32% Tuesday, sharply up from 5.09% Monday. The tri-party repo rate rose to a high of 5.60% for the second consecutive day on Tuesday.

This sharp spike in rates was mainly due to outflows for advance tax payments of around INR 1.5 trillion and other government-related outflows, dealers said. "Before GST outflows start, RBI will come up with another (INR) 1 trillion VRR for overnight," a dealer at a state-owned bank said. "If we do not include transient liquidity, then today's (Tuesday's) liquidity will for sure be in deficit," the dealer said.  

The central bank's net absorption from the banking system – a proxy for the liquidity surplus – was INR 1.20 trillion Monday, down from INR 1.83 trillion Sunday. However, to infuse transient liquidity into the banking system, the RBI conducted three variable rate repo auctions on Monday and Tuesday. Although Monday's 11-day VRR auction saw poor subscription, bidding picked up in the two VRR auctions conducted Tuesday. A total of INR 1.52 trillion of transient liquidity has been injected into the banking system in the two days through VRRs.  

"Tomorrow's (Wednesday's) VRR will be the last one before GST outflows start this weekend. I am 90% sure there will be a VRR tomorrow (VRR)," the dealer said. The market expects around INR 1.5 trillion outflows for goods and services tax payments, starting Saturday. 
 

OUTLOOK

On Wednesday, the one-day call money rate may open above the RBI's repo rate of 5.25% due to lower liquidity in the banking system. Dealers expect another VRR auction Wednesday to infuse transient liquidity in the banking system. During the day, the one-day call money rate is seen moving in a 4.50-5.50% range, dealers said. 

CALL RATE

5.41%--Tuesday's close for one-day loans

5.45%--Tuesday's open for one-day loans

5.25%--Monday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Above RBI's repo rate as liquidity falls on advance tax payments

MUMBAI – The one-day interbank call was above the Reserve Bank of India's repo rate of 5.25% on low liquidity in the banking system due to outflows for advance tax payments and poor participation in Monday's variable rate repo auction, dealers said. They expect rates to remain above the repo rate towards the higher end of the liquidity adjustment facility. 

At 0951 IST, the one-day call rate was 5.50%, up from Monday's close of 5.25%. The weighted average call rate was 5.47%, up from 5.25% Monday. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.23%, sharply higher than 5.09% on Monday.

Dealers see outflows of around INR 800 billion for advance tax payments Tuesday. Outflows for advance tax payments have drained out liquidity from the banking system. According to market estimates, INR 700 billion to INR 1 trillion was paid for advance tax on Monday.

The central bank's net absorption from the banking system – a proxy for the liquidity surplus – was INR 1.20 trillion Monday, down from INR 1.83 trillion Sunday. This fall is also because of maintenance of 100% cash reserve ratio by banks during Saturday and Monday. The Saturday-Monday period was seen as the transition period for the new amendments to the Cash Reserve Ratio and Statutory Liquidity Ratio to take place. As of Monday, cash balances with RBI were INR 7.53 trillion, against INR 7.46 trillion required for the transition period.

Dealers also attribute the rise in rates to poor offtake in Monday's 11-day VRR auction for INR 750 billion. The central bank received and took all INR 249.69-billion bids with a cut-off at 5.26% on Monday. "Eleven days is too long tenure and 5.26% (cut-off rate) is also very high, whereas I'll get funds at cheaper in market (call and TREPS). So, we did not see much participation (in Monday's VRR) but today (Tuesday) we can expect it to be fully subscribed," a dealer at a state-owned bank said.       

Later on Monday, the RBI doubled the quantum of the 10-day variable rate repo auction on Tuesday to INR 1.50 trillion from INR 750 billion due to low liquidity in the banking system and higher rates in the tri-party repo market. The rate in tri-party repo market for one-day loans rose to 5.6% on Monday, the highest since Nov. 28. The RBI cut the repo rate by 25 basis points to 5.25% on Dec. 5.  

The central bank is likely to set a cut-off of 5.26% at Tuesday's 10-day variable rate repo auction for INR 1.50 trillion, according to the median of an Informist poll of eight market participants. The auction was from 0930 IST to 1000 IST. "Rates may remain above repo around 5.40% for today (Tuesday) and in TREPS market, we can expect it to be at 5.30-5.40%," another dealer at a major state-owned bank said.

End

Edited by Saji George Titus

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