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Informist, Friday, Jan. 9, 2026

By Aaryan Khanna

NEW DELHI – The three-day interbank call money rate ended above the Reserve Bank of India's repo rate of 5.25% Friday as systemic liquidity returned to a deficit, 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 three-day call rate ended at 5.30% against 5.40% rate for one-day loans Thursday. The weighted average call rate Friday was 5.44%, up from 5.40% the previous day. The weighted average rate in the broader tri-party repo market was 5.20%, up from 5.33% Thursday.

The net liquidity injected into the banking system by the RBI – a proxy for the liquidity deficit – was INR 193.10 billion Thursday, against INR 353.84 billion net absorbed on Wednesday, indicating a surplus. Traders had not expected a deficit to return so quickly, especially with the central bank continuously infusing liquidity through weekly open market operations since the last week of December. However, the RBI's operations in the foreign exchange market to support the rupee had likely drained rupee liquidity through the week, dealers said.

To cap rates, the RBI conducted two four-day variable rate repo auctions. The first, worth INR 500 billion, was subscribed over three times. The RBI accepted bids worth INR 500.11 billion at a cut-off rate of 5.27%. Immediately after, it announced and conducted another auction for INR 1.00 trillion. For this, the central bank accepted all INR 771.99-billion bids at a cut-off rate of 5.26%. The RBI had to infuse INR 1.27 trillion of transient liquidity through VRR auctions Friday against the maturity of only INR 901.24 billion, which is likely to lead to widening of the liquidity deficit number for Friday, dealers said. 

"The auctions and liquidity support are all good but this only means that the deficit is higher and the RBI has to step in constantly," a dealer at a state-owned bank said. "TREPS (triparty repo rates) had also been higher than repo since morning, that all cooled off after the second auction which was a sign that finally things were calm in the market." 

OUTLOOK

Money markets are shut Saturday. The one-day call money rate on Monday may open above the RBI's repo rate of 5.25% on the back of early demand for funds. Liquidity conditions will improve from Monday onwards after the redemption and coupon payment of the 7.59%, 2026 bond adds nearly INR 1 trillion of liquidity into the banking system.

Systemic liquidity is seen returning to a comfortable surplus by the end of next week, after the gilt redemption and an INR 500-billion OMO auction add nearly INR 1.5 trillion of liquidity. A three-year, $10 billion dollar-rupee buy-sell swap auction on Tuesday will add to durable liquidity by Friday. During the day, the one-day call money rate is expected to move in the range of 4.70-5.50%, dealers said. 

CALL RATE

5.30%--Friday's open for three-day loans

5.55%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in %)  

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Above MSF rate as systemic liquidity returns to deficit

NEW DELHI – The interbank call money market rate was above the Reserve Bank of India's Marginal Standing Facility rate of 5.50% on early demand for funds from banks and primary dealerships, dealers said. Systemic liquidity returned to a deficit due to the RBI's infusion of funds through a variable rate repo auction and its dollar sales in the spot market to support the rupee, which drained rupee liquidity, dealers said.

At 1000 IST, the three-day call rate was 5.55%, higher than 5.40% at close on Thursday for one-day loans. The weighted average call rate was at 5.55%, against 5.40% Thursday. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was also above the repo rate at 5.31%, similar to 5.33% Thursday.

The net liquidity injected into the banking system by the RBI – a proxy for the liquidity deficit – was INR 193.10 billion Thursday, against INR 353.84 billion net absorbed on Wednesday, indicating a surplus. The RBI's dollar sales to support the rupee near 90 per dollar had reduced rupee liquidity with banks and it had also taken delivery of its dollar-rupee buy/sell swaps.

"The RBI foreign exchange actions are impacting liquidity. It has been selling in the spot market without any activity in forwards and it has taken delivery of some of the short-term swaps it had conducted last week," a dealer at a private sector bank said. "One of the big problems is that the government has not been spending this month – typically in the beginning of the month, we run up a good surplus but no spending has come in this time."

With funding needs high, the RBI conducted a four-day, INR 500-billion variable rate repo auction at 0930-1000 IST. Traders see the auction fully subscribed at a cut-off rate of 5.26%, according to the median of an Informist poll. The central bank is also expected to announce a three-day VRR auction of up to INR 1 trillion later in the day to ease money market rates. Two VRR auctions are scheduled to reverse Friday, totalling INR 901.24 billion.

Despite the crunch, banks' cash balances with the RBI rose to INR 7.27 trillion Thursday from INR 7.18 trillion Wednesday, 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 adjusted by the next reporting date of Jan. 15.

"While banks have parked more funds in the SDF (Standing Deposit Facility) window and also increased cash balances, the VRR conducted yesterday (Thursday) would show as an addition to the deficit," a dealer at a state-owned bank said. "So the number itself is understandable, but what is concerning is that we have gone back to deficit without any scheduled outflows and with the RBI conducting OMOs (open market operations)."

The RBI had bought INR 2 trillion worth of gilts through four OMO auctions so far since December, along with a $5 billion dollar-rupee buy-sell swap auction, infusing durable liquidity into the banking system. It has two more OMO auctions totalling INR 1 trillion scheduled in January and a $10-billion dollar-rupee buy-sell swap auction scheduled for Tuesday.  End

US$1 = INR 90.16

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

Edited by Tanima Banerjee

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