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Informist, Friday, Jan. 2, 2026

By Cassandra Carvalho

MUMBAI – The three-day interbank call money rate ended above the Reserve Bank of India's repo rate of 5.25% Friday, as the Centre's payments of salaries and pensions--which usually come at the beginning of the month--are yet to come into the banking system liquidity, dealers said. 

The three-day call rate ended at 5.35%, against 4.85% at Thursday's close for one-day loans. The weighted average call rate was 5.39% Friday, against 5.35% Thursday. The weighted average rate in the broader tri-party repo market was 5.22% from 5.20% in the previous session.

The net liquidity absorbed from the banking system by the RBI--a proxy for the liquidity surplus--was INR 238.65 billion Thursday, higher than INR 173.35 billion Wednesday. Traders expect Friday's figure to be around INR 500 billion. Usually, inflows of around INR 1.00 trillion or more would've come into the banking system at the beginning of the month, dealers said. The lack of this inflow from the government's expenditure kept systemic liquidity tight, dealers said. 

"By now a good (INR) 1 trillion or (INR) 1.5 trillion worth of liquidity should show in the system, but today (Friday's liquidity) will just be around INR 100 billion more. Until we reach a (INR) 1.50 trillion surplus, rates are going to be on the higher side," a dealer at a private sector bank said. 

Friday, the RBI conducted a five-day variable rate repo auction for INR 1.00 trillion, but the auction was poorly subscribed at INR 257.95 billion. Instead of borrowing for a longer, five-day period, several traders preferred borrowing for one day in the call money and triparty repo markets, dealers said.  

There was also an upward pressure on rates due to the fall in the rupee against the dollar past the psychologically crucial 90 per dollar mark Friday, dealers said. The RBI likely sold dollars to prevent a further fall, which will drain rupee liquidity, dealers said. Moreover, traders borrowed funds to park in dollar/rupee forward premiums, which rose after the fall in the rupee, dealers said. 

"Liquidity conditions are tight and on top of that the FX (foreign exchange) move happened and (RBI's) interventions are there," a dealer at another private sector bank said.

OUTLOOK

On Saturday, the two-day call money rate may open near the RBI's repo rate of 5.25% as liquidity is expected to remain tight unless a significant chunk of inflows from the Centre's expenditure are complete, dealers said. Trade volume is likely to be low, as is usual on Saturdays, as banks frontrun their weekend requirements on Friday.

On Monday, the RBI will hold an overnight variable rate repo auction of INR 500 billion at 0930-1000 IST. Systemic liquidity is seen returning to a comfortable surplus only by mid-January, after two tranches of open market operation auctions add INR 1 trillion of liquidity by Jan. 12 and a three-year $10 billion dollar-rupee buy-sell swap auction on Jan. 13 that will add to durable liquidity. That may cause the central bank to begin conducting variable rate reverse repo auctions soon, dealers said. During the day, the two-day call money rate is expected to move in a range of 4.70-5.50%, dealers said. 

CALL RATE

5.35%--Friday's close for three-day loans

5.40%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in %)  

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Near RBI's MSF rate due to early demand for funds

MUMBAI – The interbank call money rate was near the Reserve Bank of India's marginal standing facility rate of 5.50% due to early demand for funds from primary dealerships, dealers said. At 0947 IST, the three-day call rate was 5.45%, higher than Thursday's close of 4.85%. The weighted average call rate was 5.44%, against 5.35% on Thursday.

Rates in the call market were also higher as the loans are for three days. Even though the market will be open on Saturday, most cash requirements will be met on Friday. The call rate is seen falling during the day, after the demand is met, as there are no major scheduled outflows for the day, a dealer at a state-owned bank said. 

However, rates in the tri-party repo market were below the RBI's repo rate as liquidity surplus in the banking system improved, they said. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was the same as Thursday at 5.20%.  

The net liquidity absorbed from the banking system by the RBI – a proxy for the liquidity surplus – was INR 238.65 billion Thursday, higher than INR 173.35 billion Wednesday. Liquidity in the banking system was in surplus Wednesday due to the government's month-end spending.

Also, cash balances with the RBI were higher by INR 760 billion Thursday from INR 7.19 trillion Wednesday. The cash balances with RBI as of Thursday were at INR 7.95 trillion, around INR 470 billion higher than the requirement of INR 7.48 trillion for the fortnight ending Jan. 15. 

The RBI conducted a five-day variable rate repo auction for INR 1 trillion between 0930 IST and 1000 IST Friday. According to an Informist poll of seven participants, the RBI is likely to set a cut-off of 5.26% at the auction and the median is INR 500 billion. 

Dealers do not expect another VRR auction as systemic liquidity has improved. "I don't think they (RBI) will come with any more VRRs as no major outflows are seen now. But if the subscription is lower in today's (Friday) VRR, then we can expect an overnight VRR," a dealer at another state-owned bank said.  

Including Friday's auction, the central bank conducted 15 VRR auctions and infused INR 9.10 trillion of temporary liquidity into the banking system. Liquidity was in deficit from Dec. 16 to Dec. 29. Reversal of the amount through the overnight VRR auctions conducted Thursday has been completed Friday, leaving no temporary liquidity from the earlier auctions. (J. Navya Sruthi)

End

US$1 = INR 90.20

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

Edited by Akul Nishant Akhoury

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