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Informist, Thursday, Jan. 8, 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% and near the marginal standing facility rate Thursday as liquidity was tight and mutual funds quoted higher rates in the triparty repo market, dealers said. Outflows for excise duty payments and tax deducted at source Wednesday drained between INR 400 billion and INR 700 billion of systemic liquidity, dealers said.

The one-day call rate ended at 5.40% against 5.35% Wednesday. The weighted average call rate Thursday was 5.40%, up from 5.30% the previous day. The triparty repo rate ended at 5.35%, hitting a day's high of 5.55%. The weighted average rate in the broader tri-party repo market was 5.33%, up from 5.19% Wednesday. The net liquidity absorbed from the banking system by the RBI--a proxy for the liquidity surplus--was INR 353.84 billion Wednesday, down from INR 801.34 billion Tuesday. According to dealers, liquidity is seen to be at a comfortable level only when the surplus goes above INR 1 trillion.

State-owned banks, which are usually lenders in the call money market, have been on the borrowing side this week and have also been raising funds through certificates of deposits, dealers said. Along with tax outflows, upward pressure on rates increased, likely due to settlement of the RBI's dollar sales in the foreign exchange spot market, which drains rupee liquidity, dealers said. The central bank has reduced the rolling over of its forward premium book and may have also reduced its operations which neutralised its dollar sales in the spot market, dealers said. The rupee ended at 90.0175 per dollar at 1530 IST, from 89.8800 per dollar Wednesday.

Amid the system-wide liquidity crunch, mutual funds have received less-than-usual inflows from institutional investors, resulting in them lending at higher rates in the secured triparty repo market than in the unsecured call money market, dealers said. Poor monetary policy transmission across the bond yield curve also led to traders demanding higher rates while lending, along with low risk appetite to deploy funds since traders are uncertain of the direction rates will move in, they added.

"I think TREPS rate will stay at this current level till March, because people are not sure whether to lend funds or not," a dealer at a state-owned bank said. "The market direction is unclear, and intraday also, banks' requirement comes only later in the day at around 1pm or 2pm (1300 IST-1400 IST), when mutual funds wind up their lending."

The central bank, after market hours, said it will conduct a four-day variable rate repo auction for INR 500 billion Friday. The INR 1.25-trillion overnight variable rate repo auction conducted Thursday got moderate subscription. The RBI accepted all bids worth INR 709.68 billion. Friday, two variable rate repo operations adding up to INR 901.24 billion will be reversed, and some dealers had expected the RBI to announce another variable rate repo auction to roll over the amount amid the tight liquidity surplus. Others, however, did not expect it as INR 907.86 billion worth of inflows are due from the redemption of the 7.59%, 2026 bond. The redemption is likely to take place Friday as the bond matures Sunday, when the RBI is shut.

OUTLOOK

On Friday, the three-day call money rate may open above the RBI's repo rate of 5.25% as liquidity in the banking system is expected to remain tight until inflows from the bond redemption and scheduled open market operation auctions infuse durable liquidity. The RBI's variable rate repo auction may ease the upward pressure on rates, depending on how much subscription the auction gets. The central bank will conduct a four-day variable rate repo auction for INR 500 billion 0930 IST-1000 IST Friday. Mutual funds are likely to continue lending at higher rates due to the cash crunch, dealers said. 

Systemic liquidity is seen returning to a comfortable surplus by next week, after one gilt redemption and two tranches of OMO 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 three-day call money rate is expected to move in the range of 4.70-5.50%, dealers said. 

CALL RATE

5.40%--Thursday's close for one-day loans

5.45%--Thursday's open for one-day loans

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

BENCHMARK MIBOR (in %)  

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Near MSF rate on early demand as liquidity surplus shrinks

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 and banks Thursday, dealers said. The liquidity surplus in the banking system declined on account of tax payments to the government Wednesday, which increased demand for funds in the interbank market. 

At 1005 IST, the one-day call rate was 5.45%, higher than the previous close of 5.35%. The weighted average call rate was at 5.45%, against 5.30% Wednesday. 

The net liquidity absorbed from the banking system by the RBI – a proxy for the liquidity surplus – was INR 353.84 billion on Wednesday, down from INR 801.34 billion Tuesday. Systemic liquidity fell after excise duty and tax deducted at source payments drained between INR 600 billion and INR 700 billion.

"Tax payments have pulled down liquidity again. It's good that the RBI is conducting OMOs (open market operations) that are periodically giving us liquidity because on its own there is really no comfort for anyone in the market," a dealer at a state-owned bank said. "The outflows keep coming periodically and government spending is not there, so at times even public sector banks have to borrow in the market."

The outflows also led banks to sharply draw down their cash balances with the RBI on Wednesday. Banks' cash balances with the RBI fell to INR 7.18 trillion Wednesday from INR 7.75 trillion Tuesday, against the requirement of INR 7.48 trillion. With the added flexibility of maintaining an average cash balance over 15 days now rather than the reporting fortnight, traders said that the temporary dip below the minimum would be easily adjustment by the next reporting date of Jan. 15.

The weighted average rate in the wider tri-party repo market, which includes mutual funds, was also above the repo rate at 5.27% at 1005 IST. On Wednesday, it was at 5.19% after having risen in the second half of the day and spiking to as high as 5.60%. "Mutual funds have not been lending in the market because they have no flows, the funds that got drawn out from liquid schemes have not come back so far in the new year," a dealer at a private sector bank said.

With funding needs high, the RBI conducted an overnight, INR 1.25-trillion variable rate repo auction at 0930-1000 IST. The central bank accepted all bids worth INR 709.68 billion at the auction at a cut-off rate of 5.26%. The RBI had already infused transient liquidity with a two-day VRR auction Wednesday, where it accepted all bids worth INR 191.56 billion at a cut-off rate of 5.26%.  (Aaryan Khanna)

End

US$1 = INR 90.0175

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

Edited by Rajeev Pai

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