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Informist, Friday, Jan. 16, 2026

By Aaryan Khanna

NEW DELHI – The interbank call money rate ended near the Reserve Bank of India's Marginal Standing Facility rate of 5.50% due to firm demand from banks. Even with the liquidity surplus increasing, banks continued to face a cash crunch due to healthy growth for credit, with most looking to hold a surplus heading into the weekend. Lending activity from mutual funds helped cap money market rates, dealers said.

The three-day call rate ended at 5.40% against 5.50% for two-day loans Wednesday. Money markets were shut Thursday for civic body polls in Maharashtra. The weighted average call rate Friday was 5.41% from 5.39% in the previous session. The weighted average rate in the broader tri-party repo market eased to 5.17% from 5.29% Wednesday.

"People are just not in a comfortable position with liquidity. I guess you could say people have enough but not an excess," a dealer at a private-sector bank said. "If I have to fund my entire requirements with SDF (standing deposit facility) surplus then rates are bound to be higher."

The net liquidity absorbed from the banking system by the RBI--a proxy for the liquidity surplus--was INR 1.09 trillion Thursday, up from INR 764.38 billion Wednesday and INR 1.01 trillion Tuesday. The RBI's two-day variable rate repo auction had led to a dip in the surplus liquidity number Wednesday with some government spending increasing cash with banks, dealers said. Liquidity conditions further improved Friday from the settlement of the RBI's $10 billion, three-year dollar-rupee buy/sell swap auction. 

Mutual funds drew down investments in money market instruments and government bonds Friday amid a broader liquidity crunch in the financial system that was beginning to ease because of the RBI's measures. They had faced outflows mid-month from investors and were using their limited cash to lend in the tri-party repo market while being averse with investments, dealers said. 

"By Monday since the (foreign exchange) swap auction will also be fully reflected in liquidity, I think we should see the call rate near the repo rate and TREPS (triparty repo rate) down even more," a dealer at a state-owned bank said.

OUTLOOK

On Saturday, the two-day call money rate may open below the RBI's repo rate of 5.25% as most banks have met their borrowing requirements Friday. During the day, the two-day call money rate is expected to move in a range of 4.70-5.50%, dealers said. As is usual on Saturdays, trading volumes may be low.

A three-year, $10 billion dollar-rupee buy-sell swap auction conducted Tuesday will add to the liquidity surplus when Friday's money market data is released Monday, dealers said. The RBI's announcement of a four-day, INR 1-trillion variable rate repo auction for Monday is expected to help keep money market rates near the repo rate of 5.25%, though demand at the auction may be tepid due to the longer tenure.

CALL RATE

5.40%--Friday's close for three-day loans

5.47%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in %)  

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Near MSF even as inflows from FX swap settlement aid liquidity

MUMBAI – The three-day interbank call money was near the Reserve Bank of India's Marginal Standing Facility rate of 5.50% Friday, as lenders borrowed to meet their requirements ahead of the weekend, as some funds were still locked up in initial public offerings, dealers said. The settlement of the RBI's three-year $10 billion dollar-rupee buy-sell swap conducted Tuesday likely bought inflows of around INR 900 billion into the banking system Friday, but some outflows for settlement of the central bank's dollar sales in the foreign exchange spot market were likely, and traders were still uncomfortable with current liquidity conditions, they said.

"Outflows for GST (goods and services tax) will start on 20th (Tuesday), around (INR) 1.8 trillion will go there, and even though we've had so many inflows, from OMO and swap and all, it doesn't seem to reflect. There is always some outflow for rupee and market is not comfortable with this liquidity," a dealer at a private-sector bank said. "Some funds are also locked in for Bharat Coking Coal." Qualified institutional buyers showed the strongest interest at the initial public offering of Bharat Coking Coal Ltd. on its final day Tuesday. The portion reserved for them was subscribed 310.81 times.

The first trade in the call money market was conducted late since borrowers were quoting rates much below what lenders were comfortable with, dealers said. Banks and primary dealerships borrowed to provide for requirements over the next three days, along with spillover demand from the holiday on Thursday, dealers said. Expectations that stock exchanges would see reduced flows on Monday also led to some advance provisioning, they said. US markets are shut Monday for Martin Luther King Jr. Day. 

At 1100 IST, the three-day call rate was at 5.47%, against 5.50% at Wednesday's close for two-day loans. Indian financial markets were shut Thursday for municipal corporation elections in Maharashtra. The weighted average call rate was at 5.46%, against 5.39% Wednesday. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was 5.20%, compared to 5.29% in the previous session. The net liquidity absorbed from the banking system by the RBI – a proxy for the liquidity surplus – was INR 764.38 billion Wednesday, down from INR 1.01 trillion Tuesday.  (Cassandra Carvalho)  End

US$1 = INR 90.87

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

Edited by Akul Nishant Akhoury

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