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Informist, Wednesday, Jan. 7, 2026

By Cassandra Carvalho

MUMBAI – The one-day interbank call money rate ended above the Reserve Bank of India's repo rate of 5.25% Wednesday as traders shifted to borrowing in call money after rates in the triparty repo market rose in the second half of trade due to a dearth of lenders, dealers said.

The one-day call rate ended at 5.35% against 4.80% at Tuesday's close for one-day loans. The weighted average call rate was 5.30% Wednesday, inching lower from 5.31% the previous session. The weighted average rate in the broader tri-party repo market was 5.19%, up from 5.07% in the previous session. The net liquidity absorbed from the banking system by the RBI – a proxy for the liquidity surplus – was INR 801.34 billion Tuesday, higher than INR 648.12 billion Monday.

The INR-1.00-trillion two-day variable rate repo auction was poorly subscribed, since rates in the triparty repo market were lower than the minimum cut-off of 5.26% at the VRR at the time of auction, dealers said. The RBI accepted all bids worth INR 191.56 billion. Traders were hoping to borrow at lower rates in the triparty repo market for the rest of the day, amid outflows of INR 400 billion to INR 500 billion for excise duty and tax deducted at source Wednesday, dealers said. 

"There's excise and TDS outflows today (Wednesday) and overall there is a cash crunch in the system, there is demand for funds," a dealer at a state-owned bank said. "And the VRR was barely subscribed. But the issue is that whenever RBI comes with VRR, that time TREPS rates are lower so people don't go for VRR."

However, liquidity was tight across the system, and mutual funds were short on cash due to redemptions, dealers said. Mutual funds have been net sellers across Indian fixed income markets, and likely bid poorly at the INR-290-billion Treasury bill auction Wednesday, leading to higher-than-expected cut-off yields at the auction, dealers said. State-owned banks have also been borrowing, by raising certificates of deposits, dealers said, and thus lending less in overnight markets. Triparty repo rates rose above the RBI's Marginal Standing Facility rate of 5.50% in the second half of trade, dealers said. A trade of INR 232 million conducted at 1115 IST at a rate of 5.75% was an erroneous trade, dealers said.

Dealers were not expecting the RBI to conduct more VRRs this week, ahead of inflows from a bond redemption and further open market operation auctions. However, settlement of the RBI's intervention in the foreign exchange market which drains rupee liquidity, along with tax payments, likely led to the RBI announcing a VRR auction for Thursday, dealers said. The central bank, post market hours, said it will conduct an overnight VRR auction for INR 1.25 trillion Thursday.    

OUTLOOK

On Thursday, the one-day call money rate may open near the RBI's repo rate of 5.25% after outflows of INR 400 billion to INR 500 billion for tax payments, dealers said. The RBI's VRR auction may ease the upward pressure on rates, depending on how much the auction is subscribed to. The central bank will conduct an overnight VRR auction for INR 1.25 trillion 0930 IST-1000 IST Thursday. Any redemption pressure on mutual funds will put further upward pressure on rates, dealers said. 

Systemic liquidity is seen returning to a comfortable surplus by next week, after one gilt redemption, and two tranches of open market operation auctions add nearly INR 2 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. 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

5.35%--Wednesday's close for one-day loans

5.35%--Wednesday's open for one-day loans

4.80%--Tuesday'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 on early demand; liquidity up on OMO inflows

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 5.25% due to early demand for funds from primary dealerships Wednesday, dealers said. However, rates in the tri-party repo market were at 5.18%, below the RBI's repo rate, due to a rise in liquidity surplus in the banking system.

At 1003 IST, the one-day call rate was 5.35%, higher than the previous close of 4.80%. The weighted average call rate was at 5.35%, against 5.31% Tuesday. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was at 5.13%, against 5.07% Tuesday.

The net liquidity absorbed from the banking system by the RBI – a proxy for the liquidity surplus – was INR 801.34 billion Tuesday, higher than INR 648.12 billion Monday. Systemic liquidity increased due to INR 500 billion of inflows through the RBI's open market operations auction.    

"Even though it (call) opened above (RBI's) repo (rate), it is still 5 bps (basis points) down from yesterday's (Tuesday) open, which shows demand for funds is slightly lower," a dealer at a private bank said. "We also have redemptions this week which will also increase liquidity (and weigh on rates)," the dealer said. On Sunday, INR 908 billion inflows are expected into the banking system due to the redemption of 7.59%, 2026 bonds.

Dealers expect around INR 600 billion of outflows for excise duty and tax deducted at source payments. Of the INR 600 billion, around INR 400 billion is expected to be for excise duty payments. 

Keeping these outflows in mind, the RBI conducted a variable rate repo auction for INR 1 trillion at 0930 IST-1000 IST on Wednesday. According to an Informist poll of 10 market participants, the central bank is likely to set a cut-off of 5.26%, with the median at INR 288 billion. The market expects the auction to be under-subscribed as there is comfortable liquidity available in the system and lower borrowing rates in the tri-party repo market. (J. Navya Sruthi)

End

US$1 = INR 89.88

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

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