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Informist, Saturday, Jan. 3, 2026

 

By Cassandra Carvalho

 

MUMBAI – The two-day interbank call money rate ended below the Reserve Bank of India's Standing Deposit Facility rate Saturday because of low requirements for funds likely due to some banks having excess liquidity and some inflows from the Centre for salary and pension payments, dealers said. As is usual for Saturdays, volumes in money markets were muted.

 

The two-day call rate ended at 4.75% compared with 5.35% for three-day loans on Friday. The weighted average call rate was 4.75% Saturday, against 5.39% Friday. 

 

Demand for funds on Saturdays is usually low, since banks frontrun their weekend requirements on Friday. However, the call money rate was "unusually" low this Saturday, trading in a range of 4.50-4.85%, the upper end well below the RBI's SDF rate. Some inflows from the Centre's payments for salaries and pensions--which usually come at the beginning of the month—may have come into the banking system Saturday, dealers said. The current liquidity in the banking system is also skewed, dealers said, and some banks have excess cash, pushing rates lower.

 

However, most dealers believe that liquidity over the weekend will be only marginally higher than Thursday. 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. The Centre's payments are likely delayed, and outflows are also expected next week for settlement of the RBI's dollar sales in the foreign exchange market, dealers said. A rise in dollar-rupee forward premiums may also put an upward pressure on money market rates Monday, dealers said. 

 

The RBI's decision to conduct an overnight variable rate repo auction of INR 500 billion Monday is seen as an indication that liquidity may not be significantly higher Monday, dealers said. Alongside, it could also be a precautionary measure to prevent rates from rising above repo even if the government's inflows do come into the system, they said.  

 

Traders await the settlement of the central bank's open market operation auction on Tuesday, which will likely infuse durable liquidity of INR 500 billion into the banking system next week. 

 

OUTLOOK

On Monday, the one-day call money rate may open near the RBI's repo rate due to early demand for funds, especially from primary dealerships, as liquidity is expected to remain tight unless a significant chunk of inflows from the Centre's expenditure are complete, dealers said. If there is a large quantum of inflows from the Centre's month-end expenditure, combined with the central's bank variable rate repo auction Monday, rates may fall below repo later in the day.  

 

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 one-day call money rate is expected to move in a range of 4.70-5.50%, dealers said. 

 

CALL RATE

4.75%--Saturday's close for two-day loans

4.75%--Saturday's open for two-day loans

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

 

End

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

 

Edited by Vandana Hingorani

 

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