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Informist, Wednesday, Dec. 31, 2025

By Cassandra Carvalho

MUMBAI - The one-day interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 5.00% Wednesday since most traders had met their major funding requirements earlier in the day. Inflows of INR-500-billion from settlement of the Reserve Bank of India's open market operation auction Tuesday, along with likely payouts from the Centre's expenditure for pensions and salaries aided liquidity Wednesday, but it was not enough to pull down money market rates on the last day of the December quarter, dealers said. 

The one-day call rate ended at 4.85% against 5.48% Tuesday. In early trade, the one-day call rate hit 5.75%, the highest since Oct. 29--before the RBI's Monetary Policy Committee cut the repo rate by 25 basis points in December. The weighted average call rate was 5.56% Wednesday, up from 5.48% Tuesday. 

The weighted average rate in the broader tri-party repo market was 5.33%, above the repo rate, and up from 5.29% Tuesday. The net liquidity injected into the banking system by the RBI--a proxy for the liquidity deficit--was INR 86.04 billion Tuesday, against INR 715.84 billion Monday. The liquidity deficit in the banking system was the lowest since Dec. 15 due to the RBI's open market operation auction settled Tuesday, which infused INR 500 billion of durable liquidity into the system.

The RBI intraday said it would conduct an overnight variable rate repo auction of INR 500 billion, after the overnight call rate rose sharply. However, the auction was not fully subscribed, and the central bank accepted all bids worth INR 307.70 billion. Traders said the inflows into the banking system liquidity were skewed, and some state-owned banks and mutual funds had received flows Wednesday, and did not need to borrow from the VRR, dealers said. Some dealers also did not have enough securities to tender as collateral, they said. 

Mutual funds received some liquidity, and were deploying the funds into Treasury bills and non-Statutory Liquidity Ratio securities instead of lending in the triparty repo market, dealers said, which kept rates in the secured borrowing market elevated. Some mutual funds were still facing redemption pressure, since state-owned banks had withdrawn some funds to divert into quarter-end credit disbursements, dealers said. 

"Today (Wednesday) is the last day of funding for credit disbursements, so the pressure on rates, but I think the surplus is skewed, PSU banks have managed to collect funds, how much ever they need. They have raised CDs (certificates of deposit) also," a dealer at a private sector bank said. 

State-owned banks, which are usually lenders, were borrowers in money markets this week, and have raised funds through certificates of deposit as well, to fund their lending needs, dealers said. Along with heavy quarter-end credit offtake, demand for funds was high due to month-end reporting requirements, dealers said.  

The Centre's month-end expenditure likely began Wednesday, dealers said. Systemic liquidity, however, is seen returning to a surplus only by mid-January. 

"Around 5,000 to 6,000 crore (INR 50-60 billion) I saw has come in for state pensions today (Wednesday)," a dealer at a state-owned bank said. "It could be more because this is just what I know. But this won't be enough, it'll take two-three days for (money market) rates to settle, and RBI has to back us up and roll over the previous VRRs also."

The RBI, post market hours, said it would conduct an overnight VRR of INR 1.00 trillion Thursday. Traders were expecting an announcement of an overnight operation of around INR 1.50 trillion due to reversal of around INR 1.75 trillion from previous VRR auctions Thursday.   

OUTLOOK

On Thursday, the one-day call money rate may open near the RBI's repo rate of 5.25% amid tight liquidity, even as the banking system liquidity may turn to surplus on the Centre's expenditure for salaries and pension payouts this week, dealers said. Systemic liquidity is seen returning to a comfortable surplus only by mid-January, after the next open market operation auctions and a three-year $10 billion dollar-rupee buy-sell swap auction add to durable liquidity. The RBI will conduct an overnight variable rate repo auction of INR 1.00 trillion at 0930-1000 IST Thursday. During the day, the one-day call money rate is expected to move in a range of 4.70-5.65%, dealers said. 

CALL RATE

4.85%--Wednesday's close for one-day loans

5.60%--Wednesday's open for one-day loans

5.48%--Tuesday's close for one-day loans

BENCHMARK MIBOR (in %)  

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Above MSF rate on firm demand for reporting fortnight needs

MUMBAI – The interbank call rate was above the Reserve Bank of India's marginal standing facility rate due to firm demand from primary dealerships and the RBI's reporting fortnight requirement, dealers said. However, rates are likely to cool down later in the day on expected month-end spending by the government, they said.

At 1017 IST, the one-day call rate was 5.70%, higher than Tuesday's close of 5.48%. The weighted average call rate was 5.68%, higher than 5.48% on Tuesday. The one-day call rate hit 5.75%, the highest since Oct. 29, when the repo rate was 5.50%. The RBI cut the repo rate by 25 basis points to 5.25% on Dec. 5. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.41%, against 5.29% in the previous session.   

"We have reporting fortnight requirements today (Wednesday), which is why rates are higher," a dealer at a state-owned bank said. Dealers said banks were also on the borrowing side due to higher credit disbursements during the quarter-end. 

As of Tuesday, cash balances with the RBI were INR 7.37 trillion, against the requirement of INR 7.46 trillion for the fortnight ending Wednesday. The RBI changed the definition of "fortnight" from a Saturday-to-Friday cycle to a clearly defined two-part monthly period – either the 1st to the 15th of each month or the 16th to the last day of the month, both days inclusive. 

Meanwhile, the net liquidity injected into the banking system by the RBI--a proxy for the liquidity deficit--was INR 86.04 billion Tuesday, against INR 715.84 billion Monday. The liquidity deficit in the banking system  was the lowest since Dec. 15 due to the RBI's open market operations auction, which infused INR 500 billion of durable liquidity into the system.

Dealers expect liquidity in the system to move into surplus on Wednesday, as the government's month-end inflows are expected later during the day. "By Jan. 1, system liquidity will be in 1 lakh crore surplus (INR 1 trillion) and will remain in surplus for next week because of forex swap ($-INR buy-sell swap) and OMOs," the dealer said.

The central bank is conducting the 13th VRR auction in the second half of December between 1015 IST and 1045 IST Wednesday to support liquidity in the banking system. The overnight VRR auction is worth INR 500 billion. According to an Informist poll of 10 participants, the RBI is likely to set a cut-off of 5.26% at the auction and the median is INR 500 billion.

However, some dealers said a few bankers may also bid on the required amount at 5.27% due to quarter-end requirements. On Monday, the central bank took all INR 1.44 trillion of bids at the two-day VRR auction. Reversal of both the auctions conducted on Monday and Wednesday will be on Thursday. (J. Navya Sruthi)

End

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

Edited by Vandana Hingorani

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