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Informist, Wednesday, Jan. 14, 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% for the second straight day Wednesday, despite an increase in the surplus liquidity in the banking system. The holiday scheduled for Thursday, Jan. 15, which is the end of the central bank's new reporting fortnight, led to banks shoring up their cash balances and increased demand for funds, dealers said.

"There was a mix of factors today. One is that the reporting day is now a holiday, so banks had to make sure cash was in good supply while also maintaining enough of a buffer," a dealer at a private-sector bank said. "But the second thing is that the RBI's measures have put some money into the system, so the reliance on VRRs (variable rate repo auctions) has come down."

The two-day call rate ended at 5.50%, flat from Tuesday's close for one-day loans. The weighted average call rate Wednesday was 5.39%, up from 5.35% the previous day. The weighted average rate in the broader tri-party repo market inched up to 5.29% from 5.26% Tuesday, remaining above the repo rate.

The net liquidity absorbed from the banking system by the RBI--a proxy for the liquidity surplus--was at a one-month high of INR 1.01 trillion Tuesday, sharply up from INR 164.11 billion Monday. The settlement of the RBI's bond purchase of INR 500 billion through an open market operation added to the systemic liquidity, as did the redemption and coupon payment on state government securities worth nearly INR 200 billion, dealers said.

Demand for funds remained high through the day as money markets are shut Thursday for local body polls in Maharashtra, on a day when banks have to fulfil their reporting requirements for maintaining the cash reserve ratio. Banks' cash balances with the RBI as on Tuesday were INR 7.25 trillion, lower than the average daily cash reserve requirement of INR 7.48 trillion for the RBI-mandated fortnight ending Thursday.

Despite this, traders bid for only INR 291.14 billion at the two-day, INR 500 billion variable rate repo auction at 0930-1000 IST. The RBI accepted all bids at a cut-off rate of 5.26%. Banks drew down cash from the standing deposit facility window Tuesday since the central bank did not conduct a VRR auction, despite the maturity of two such auctions worth INR 1.27 trillion Tuesday.

Dealers said the lack of a signal of the RBI's discomfort on money market rates being higher than the repo rate had also led to lenders demanding such rates consistently. However, an influx of liquidity of over INR 900 billion Friday from the settlement of the RBI's three-year, $10 billion dollar-rupee buy-sell swap auction may reduce demand for funds in the interbank market. The weighted average call money rate may also fall to near the repo rate early next week before goods and services tax outflows by Jan. 21, dealers said.

OUTLOOK

India's financial markets are shut Thursday due to civic polls in Maharashtra. On Friday, the three-day call money rate may open above the RBI's repo rate of 5.25% on early demand for funds. A three-year, $10 billion dollar-rupee buy-sell swap auction conducted Tuesday will add to durable liquidity by Friday, which may cap money market rates, dealers said. During the day, the three-day call money rate is expected to move in a range of 4.70-5.50%, dealers said.

CALL RATE

5.50%--Wednesday's close for two-day loans

5.42%--Wednesday's open for two-day loans

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

BENCHMARK MIBOR (in %)  

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Above repo before reporting day; surplus unexpectedly INR 1 tln

MUMBAI – The two-day interbank call money rate was above the Reserve Bank of India's repo rate of 5.25% Wednesday as traders borrowed funds to fulfil their reporting requirements on Thursday. Clearing Corp. of India had notified that Thursday will be a public holiday due to municipal elections in Maharashtra. Elevated rates are despite the liquidity surplus returning to the crucial level of INR 1 trillion Tuesday, a figure which traders view as comfortable. 

At 1032 IST, the two-day call rate was at 5.45%, against 5.50% at Tuesday's close for one-day loans. The weighted average call rate was at 5.43%, against 5.35% Tuesday. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.24%, compared to 5.26% in the previous session. The net liquidity absorbed from the banking system by the RBI – a proxy for the liquidity surplus – was INR 1.01 trillion Tuesday, the highest since Dec. 15, against INR 164.11 billion Monday.

Demand for funds was high as the overnight borrowing markets are shut Thursday, a day when banks have to fulfil their reporting requirements for maintaining the cash reserve ratio. Banks' cash balances with the RBI as on Tuesday were INR 7.25 trillion, lower than the average daily cash reserve requirement of INR 7.48 trillion for the RBI-mandated fortnight ending Thursday.

While the Maharashtra government has announced a public holiday for Thursday, other state governments are open, and banks are likely to also face credit outflows Thursday, dealers said, which led to traders borrowing in money markets Wednesday to provide for the offtake. Additionally, till the end of trade Tuesday, there was demand for funds and rates were elevated. Some of this demand spilt over to Wednesday, dealers said. 

"All other states will be open tomorrow (Thursday), only Maharashtra will be closed, so there will definitely be some fund requirements," a dealer at a state-owned bank said. "And additionally, Thursday is 15th, the reporting fortnight day, all of us banks have to maintain reserves so even though liquidity is good, demand for funds will be there."

Several traders did not expect the liquidity to be in a INR-1.01-trillion surplus Tuesday, and had already made arrangements to borrow when money markets opened Wednesday, dealers said. Along with Tuesday's settlement of the INR-500-billion open market operation auction conducted Monday, inflows of around INR 210.33 billion from redemption and coupon on state bonds aided the liquidity surplus. Traders speculated that either the settlement of the RBI's operations in the secondary gilt market or the foreign exchange market also contributed to the sudden, unexpected rise in the liquidity surplus, dealers said.  

"Seems like RBI has done something, some settlement or maturity of some earlier FX (foreign exchange) operation could be there, some reversal, that has added to liquidity," a dealer at a private sector bank said.

The RBI's two-day, INR-500-billion variable rate repo auction was subscribed nearly 60%, against expectations of full subscription, since the INR-1.01-trillion surplus liquidity provided some comfort to traders wanting to borrow funds for reporting requirements, dealers said.  End

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

Edited by Ashish Shirke

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