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Informist, Friday, Apr. 10, 2026

By Durgesh Nandan

MUMBAI – The interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 5.00% because of the ample liquidity surplus in the banking system. Despite a brief rise in money market rates and volumes after its announcement, the unexpected INR 2-trillion variable rate reverse repo auction did not significantly increase demand for funds from banks, dealers said.

The three-day call rate ended at 4.75% Friday, sharply down from 5.10% for one-day loans Thursday. The weighted average call rate was 5.04%, down from 5.08% Thursday. The trade volume in the call money market was INR 156.47 billion, down from INR 176.71 billion Thursday.

The central bank announced and conducted a seven-day VRRR auction Friday, the first such liquidity action in four months. It got offers worth INR 2.09 trillion and accepted the entire notified amount at a cut-off rate of 5.24%. The weighted average rate was 5.23%.

The RBI likely conducted the VRRR to keep the weighted average call rate above the standing deposit facility rate, dealers said. The redemption of the 5.63%, 2026 bond added INR 865.05 billion to the existing liquidity surplus Friday, threatening to pull down the weighted average call rate below the lower end of the RBI's liquidity adjustment facility corridor. The call rate had opened at 5.10%, its lowest level for weekday since mid-February.

According to the latest data, the net liquidity absorbed by the RBI was INR 4.55 trillion Thursday, almost unchanged from INR 4.57 trillion Wednesday. The proxy for the liquidity surplus Wednesday was at the highest since May 2022 and around 1.8% of banks' net demand and time liabilities. Dealers said surplus liquidity with banks is expected to remain at INR 3 trillion due to the lack of major outflows next week, even with the cash parked in the RBI's VRRR auction.

The tri-party repo rate ended at 5.00%, up sharply from 4.50% Thursday. However, the weighted average rate in the tri-party repo market was 4.79%, marginally down from 4.81% the previous day. The volume in the tri-party repo market was INR 4.1 trillion, similar to Thursday. Some banks borrowed in the tri-party repo market to park funds at the VRRR auction, though most banks used the excess cash parked in the SDF, dealers said.

The market was divided whether the central bank would conduct another VRRR before Friday's seven-day auction is reversed. A few dealers said the RBI could come up with another VRRR for up to INR 1 trillion for a tenure of up to three days. Others said the central bank would only consider a rollover when the current auction is due for reversal.

"We could expect a rollover of INR 500 billion from this VRRR as there is still surplus liquidity in the system due to G-sec (government securities) maturity and redemption of bonds next week and this (VRRR) will not affect (surplus) liquidity," a dealer at a large private-sector bank said.

OUTLOOK

Money markets are shut Saturday. Monday, the one-day call money rate is likely to open at 5.10-5.15% on early demand for funds from primary dealerships. Ample liquidity in the banking system is likely to keep rates near the RBI's SDF rate throughout the day. The weighted average call rate is expected to be around 5.10% Monday, while the weighted average tri-party repo rate may be 4.80-5.00%.

CALL RATE

4.75%--Friday close for three-day loans

5.10%--Friday open for three-day loans

5.10%--Thursday close for one-day loans

BENCHMARK MIBOR (in %)  

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: At SDF rate; some banks borrow to park in surprise 7-day VRRR

MUMBAI – The three-day interbank call money rate was at the Reserve Bank of India's Standing Deposit Facility rate of 5.00%. The rates and volumes rose after the central bank announced it would conduct a seven-day variable reverse rate repo auction for INR 2 trillion Friday at 1400-1430 IST, a surprise to the market after RBI Governor Sanjay Malhotra downplayed the possibility on Wednesday, dealers said.

At 1340 IST, the three-day call rate was at 5.00%, down from Friday's opening at 5.10%. The weighted average call rate was 5.08%, the same as on Thursday. Trade volume in the call money market was INR 136.11 billion, sharply up from INR 73.40 billion at 0954 IST. The tri-party repo rate hit a high of 5.05% after the announcement, and was at 4.90% at 1340 IST from 4.80% at 0954 IST. The weighted average tri-party repo rate was 4.81%, unchanged from Thursday. 

Some banks are borrowing in the overnight markets to park funds at the VRRR auction as they expect the liquidity surplus in the banking system to remain over the next week, dealers said. The auction will reverse before goods and services tax outflows for April that take place around Apr. 20. However, some market participants are wary of parking funds for the entire week as the reporting fortnight will end on Wednesday, in the middle of the VRRR period. 

"We don't expect much subscription in VRRR auction as it will mature on Apr. 17 and in between banks will have to maintain cash for the fortnight closing and credit off-take requirements," a dealer at a public sector bank said. Dealers expect the subscription to be around INR 750 billion to INR 1 trillion in this VRRR auction.

The net liquidity absorbed by the RBI, an indication of liquidity surplus in the banking system, was INR 4.55 trillion Thursday, almost unchanged from INR 4.57 trillion. This level of surplus liquidity is at the highest since May 2022 and around 1.8% of banks' net demand and time liabilities, with the redemption of the 5.63%, 2026 bond over the weekend added nearly INR 900 billion in liquidity. The tri-party repo rate over the next week may tend towards 5%, while the weighted average call rate may stay between 5.10-5.20% rather than drifting towards the SDF rate, dealers said.  (Durgesh Nandan and Shumaila Firoz)

India Call: Steady; rate seen down on surplus liquidity, low demand for funds

MUMBAI – The three-day interbank call money rate was unchanged Friday, but above the Reserve Bank of India's Standing Deposit Facility rate of 5.00% due to usual demand for funds from primary dealerships in early trade, dealers said. The tri-party repo rate was below the RBI's SDF rate due to low demand for funds and liquidity surplus. 

At 0954 IST, the three-day call rate was 5.10%, flat compared to Thursday for one-day loans. The weighted average call rate was 5.10%, higher than 5.08% on Thursday. Trade volume in the call money market was INR 73.40 billion. The weighted average call rate is expected to be around 5.08% throughout the day due to weak demand for funds and ample liquidity, dealers said. At the same time, the tri-party repo rate was 4.80% and the weighted average rate was 4.79%, marginally lower than 4.81% Thursday. The volume in the tri-party repo market was INR 1.54 trillion. 

The net liquidity absorbed by the RBI, an indication of liquidity surplus in the banking system, was INR 4.55 trillion Thursday, almost unchanged from INR 4.57 trillion Wednesday. The surplus liquidity was largely steady due to lack of major outflows or inflows Thursday, dealers said. The major scheduled inflow for Friday is INR 128 billion for maturity of 364-day Treasury bills.

Dealers expect the surplus liquidity to cross INR 5 trillion due to INR 865 billion of inflows on the back of redemption of the 5.63%, 2026 bond. Other than bond redemptions, there are also inflows for several coupons on state government bonds and maturity of treasury bills next week. The liquidity surplus is expected to remain above INR 5 trillion due to lack of major outflows next week.

Despite ample liquidity, dealers are divided on whether the central bank will conduct a variable rate reverse repo auction. A few dealers said they don'e expect a VRRR next week as goods and services outflows are scheduled by Apr. 21, and will drain systemic liquidity. But dealers at private sector banks expect a VRRR due to ample liquidity and low overnight rates. They expect the RBI to conduct it overnight or for a shorter period of time.       

"As no major outflow is scheduled next week, we expect that if surplus liquidity will cross 5 lakh crore mark (INR 5 trillion), then the RBI could conduct a VRRR (auction) next week for 50 thousand crore (INR 500 billion) to 1 lakh crore (INR 1 trillion), and tenure would be 2-3 day," a dealer at a state-owned bank added.  (Durgesh Nandan)  End

Edited by Rajeev Pai

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