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Informist, Tuesday, Jan. 13, 2026

By Aaryan Khanna

NEW DELHI – The interbank call money rate ended at the Reserve Bank of India's Marginal Standing Facility rate of 5.50% on Tuesday due to firm demand for funds from banks amid tight liquidity. The lack of a variable rate repo auction by the central bank Tuesday despite the reversal of two four-day auctions aggregating INR 1.27 trillion led banks to fund their liquidity requirement from the money market, putting pressure on rates.

"Banks have turned into borrowers because the RBI did not do a VRR," a dealer at a state-owned bank said. "Even PSU (state-owned banks) have been borrowing in TREPS because they couldn't rollover their requirements with RBI money."

The one-day call rate ended at 5.50% against 4.75% Monday. The weighted average call rate Tuesday was 5.35%, up from 5.32% the previous day. The weighted average rate in the broader tri-party repo market rose to 5.26%, above the repo rate and rising from 5.06% Monday.

The net liquidity absorbed from the banking system by the RBI--a proxy for the liquidity surplus--was INR 164.11 billion Monday, down from INR 298.72 billion Sunday. Payment of INR 290 billion to the government for gilts purchased at the weekly auction Friday drained liquidity Monday, dealers said.

Liquidity conditions improved Tuesday after the settlement of the RBI's INR 500-billion bond purchase through an open market operation auction Monday. Even so, mutual funds demanded higher rates on uncertain liquidity positions as corporate houses and banks have parked a lower-than-usual amount of cash in liquid fund schemes, dealers said. Schemes are also facing redemption pressures mid-month due to the tight liquidity amid strong credit offtake, they said.

OUTLOOK

On Wednesday, the two-day call money rate may open above the RBI's repo rate of 5.25% on early demand for funds amid tight liquidity. The redemption and coupon payment of the 7.59%, 2026 bond will add nearly INR 1 trillion of liquidity into the banking system. With the RBI speculated to be buying gilts to replace the bond on its book after it matured Sunday, the full benefit is only expected to be visible on banking system liquidity once the central bank's purchases end, dealers said.

By the end of the week, the central bank will no longer have to conduct liquidity injections and may even withdraw transient liquidity through a variable rate reverse repo auction, dealers said. A three-year, $10 billion dollar-rupee buy-sell swap auction on Tuesday will add to durable liquidity by Friday.

The RBI's announcement of a two-day, INR 500-billion variable rate repo auction Wednesday may also cap money market rates after a lack of such an auction had put pressure on the money markets Tuesday, 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

5.50%--Tuesday's close for one-day loans

5.40%--Tuesday's open for one-day loans

4.75%--Monday's close for one-day loans

BENCHMARK MIBOR (in %)  

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Above repo on tight liquidity; TREPS up on lack of roll-over VRR

MUMBAI – The one-day interbank call money rate was above the Reserve Bank of India's repo rate of 5.25%, and near the marginal standing facility rate, as the systemic liquidity remained tight, with the surplus falling further Monday. The lack of a variable rate repo auction to roll-over cash borrowed at previous VRRs maturing Tuesday also led to a rise in overnight borrowing rates, dealers said. The triparty repo rate rose later in trade, likely due to sudden redemption pressure on mutual funds, which are usually lenders in this market, dealers said. 

At 1030 IST, the one-day call rate was at 5.40%, higher than 4.75% at Monday's close for one-day loans. The call rate opened at 5.40% for the second consecutive session. The weighted average call rate was at 5.40%, against 5.32% Monday. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.19%, compared to 5.06% in the previous session. The net liquidity absorbed from the banking system by the RBI--a proxy for the liquidity surplus--was INR 164.11 billion Monday, down from INR 298.72 billion Sunday. Payment of INR 290 billion for gilts purchased at the gilt auction Friday drained liquidity Monday.

"There was no VRR to roll-over right, and all the main borrowing starts at 10 o'clock (1000 IST), so liquidity is tight," a dealer at a state-owned bank said. "RBI has come with OMOs (open market operations) and all but the surplus is still barely anything."

Two four-day variable rate repo operations totalling INR 1.27 trillion reversed Tuesday, leading to a dearth of funds since the RBI did not announce another VRR operation to roll-over the reversed amount, dealers said. Sudden redemptions in mutual funds also likely led to a rise in the triparty rate, dealers said. Dealers were expecting some comfort in liquidity Tuesday due to the settlement of the RBI's INR-500-billion open market operation auction conducted Monday.

Traders speculated that minor inflows could come from the central bank's likely purchases in the secondary gilt market. The 'others' category of bond market participants, comprising the RBI, insurance companies and provident funds, was the largest net buyers of gilts Monday, with net purchases worth INR 48.01 billion. Due to the redemption of the 7.59%, 2026 gilt Sunday, some speculated that the RBI could've bought gilts on-screen to replenish its book, even as the central bank is buying gilts through open market operation auctions, dealers said. Some traders expect the RBI to conduct a VRR on Wednesday, until the first phase of the settlement of the three-year dollar-rupee buy-sell swap conducted Tuesday adds to durable liquidity by end of this week, dealers said.  (Cassandra Carvalho)

End

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

Edited by Ashish Shirke

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