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Informist, Friday, Dec. 26, 2025

By Aaryan Khanna

NEW DELHI – The interbank call money rate ended below the Reserve Bank of India's Standing Deposit Facility rate of 5.00% as banks met the bulk of their borrowing requirements in the first half of the day. The weighted average call rate was near the Marginal Standing Facility rate of 5.50% for the second straight day, indicating tight liquidity conditions had been pushing up rates, dealers said. 

The three-day call rate ended at 4.85% against 4.80% for two-day loans Wednesday. Money markets were shut Thursday for Christmas. The weighted average call rate was 5.46% Friday compared with 5.47% in the previous session. The weighted average rate in the broader tri-party repo market was 5.25%, down from 5.31% Wednesday.

The RBI's net liquidity injected into the banking system – a proxy for the liquidity deficit – was INR 845.24 billion Thursday, the most since Sept. 23 and higher than INR 810.65 billion Wednesday. The liquidity deficit widened due to some adjustments by banks with their cash balances with the RBI, dealers said. Beyond that, an increase in currency in circulation around Christmas and the New Year was also tightening liquidity with banks, they said.

During the day, there were no significant inflows or outflows and funding costs are expected to remain high. Traders said the delay in the government's month-end spending had kept liquidity tight after over INR 3.5 trillion worth of outflows this month just for advance tax in the December quarter and goods and services tax for the month.

"Government spending has not come in at all through the month, the advance tax and everything else is still stuck with the government," a dealer at a private-sector bank said. "This has been the case the entire fiscal year, that other than month-end, the government has stopped spending, which is why you see liquidity numbers going all over the place." Dealers said no government spending came through Friday, when it usually begins, and may only make a material impact on liquidity conditions by Tuesday.

Moreover, banks' demand for funds is heightened near the quarter-end on Wednesday with credit offtake rising and increasing banks' funding needs, dealers said. Banking system credit growth was at a 13-month high of 11.7% on year as on Dec. 12 and the system's credit-deposit ratio rose to a record high of 81.1%.

This led to increased participation at the central bank's variable rate repo auctions Friday. With three VRR auctions worth INR 1.90 trillion reversing Friday, the RBI conducted an INR 1.75-trillion, four-day VRR auction at 0930-1000 IST. The market tendered bids worth INR 2.04 trillion and after allotting the notified amount the central bank held another auction worth INR 500 billion for the same four-day tenure, maturing Tuesday, at 1100-1130 IST. At the second auction, the central bank accepted all bids worth INR 280.07 billion. It set the cut-off rate at 5.26% on both auctions.

OUTLOOK

Money markets are shut on Saturday. On Monday, one-day call money rate may open near the RBI's MSF rate of 5.50% due to the prevailing liquidity deficit in the financial system. During the day, the one-day call money rate is expected to move in a range of 4.70-5.65%, dealers said.

Traders said the RBI is unlikely to hold another VRR auction Monday as Friday's tenders mature only on Tuesday and have infused INR 2.03 trillion of liquidity temporarily into the banking system. However, some expect an overnight variable rate repo auction Monday if the call money rate is above 5.50%. With the RBI constantly providing liquidity through short-term measures and announcing durable liquidity infusion starting Monday, traders were upbeat about liquidity conditions improving in the first half of January, dealers said. 

CALL RATE

4.85%--Friday's close for three-day loans

5.52%--Friday's open for three-day loans

4.80%--Wednesday's close for two-day loans

BENCHMARK MIBOR (in %)  

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Above MSF rate on early demand for funds amid liquidity deficit

NEW DELHI – THe interbank call money rate was above the Reserve Bank of India's Marginal Standing Facility rate of 5.50% due to early demand for funds amid a widening liquidity deficit in the banking system. The central bank's liquidity infusion through a large variable rate repo auction will help cool rates to near the repo rate soon, dealers said.

At 1000 IST, the three-day call rate was 5.55%, higher than Wednesday's close of 4.80% for two-day loans. Money markets were shut on Thursday for Christmas. The weighted average call rate was also 5.55%, higher than 5.47% Wednesday. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.35%, slightly higher than 5.31% in the previous session.

The RBI's net liquidity injected into the banking system – a proxy for the liquidity deficit – was INR 810.65 billion Wednesday, the most since Sept. 23 and higher than INR 616.36 billion Tuesday. The liquidity deficit widened due to some adjustments by banks with their cash balances and also after the settlement of Tuesday's INR 337.20-billion state bond auction.

However, banks were no longer worried about maintaining individual cash balances Friday after the RBI changed the definition of reporting fortnight effective Dec. 15. Now, banks no longer have to maintain cash balances with the RBI on a fortnightly basis ending Friday but in two periods of every month – the first to 15th and the 16th to the last working day. 

"Liquidity is still under stress after GST payments and we don't see any government spending coming today (Friday)," a dealer at a state-owned bank said. "With the change in definition of reporting Friday and cash reserve ratio, that stress is no longer there in the market. We will only have to maintain it on the 31st (Wednesday, Dec. 31)."

Some dealers said the central bank's decision to conduct a four-day VRR auction instead of a three-day auction over the weekend also suggested delay in the government's month-end spending. Meanwhile, subscription at the RBI's four-day, INR 1.75-trillion variable rate repo auction is seen INR 1.31 trillion, according to the median in an Informist poll. As banks fulfill their liquidity needs, rates should trend lower during the day but may rise after 1600 IST, dealers said.  (Aaryan Khanna)

End

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

Edited by Deepshikha Bhardwaj

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