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Informist, Wednesday, Aug. 5, 2026

By Cassandra Carvalho

MUMBAI – The one-day interbank call money rate ended below the Reserve Bank of India's Standing Deposit Facility rate of 5.00% Wednesday, the same as Tuesday, as surplus liquidity in the banking system was at its highest since Apr. 20, coupled with a lack of major outflows, dealers said. As was expected by several market participants, the RBI post-market hours Wednesday said it would conduct a four-day variable rate reverse repo operation for INR 1.5 trillion Thursday. The announcement comes shortly after Reserve Bank of India Governor Sanjay Malhotra, in his monetary policy statement, said the central bank would opt for both liquidity-draining and infusing measures to manage systemic liquidity. Several traders had expected the RBI to conduct a variable rate reverse repo operation Monday itself. This will be the first VRRR since Apr. 17.

The RBI's Monetary Policy Committee left the repo rate and policy stance unchanged at 5.25% and "neutral", respectively, in line with traders' expectations. Commentary on liquidity reassured several traders, with expectations of a hike in the cash reserve ratio fading. Traders are comfortable with the RBI conducting VRRRs, with some unable to get lucrative returns outside of parking money in the standing deposit facility at 5.00%, dealers said. "TREPS opening below SDF is not good. Some of this (excess) money is going into either SDF or SLR (statutory liquidity ratio-eligible securities) and at the beginning of the month there are not many disbursements either," a dealer at a state-owned bank said. 

Outflows for excise duty and tax deducted at source will begin by the end of this week, but the outflow is not of significant size, and therefore subscription at the VRRR is seen robust, dealers said. Some traders were not expecting the VRRR this week, but the coming Monday. "The RBI usually waits for a few days before suddenly announcing a VRRR, so I think it will watch where rates are this week and then hold a VRRR on Monday," a dealer at a private sector bank had said during market hours.  

The one-day call money rate ended at 4.60% Wednesday, the same as Tuesday's close for one-day loans. The weighted average call rate was 5.05%, inching lower from 5.06% Tuesday. Market volume was INR 149.49 billion Wednesday, more than INR 131.32 billion in the previous session. The one-day tri-party repo rate ended at 5.01%, from 4.90% for one-day loans Tuesday. The weighted average rate was 4.88%, the same as the previous day. The volume in the TREPS market was INR 4.34 trillion, slightly lower than INR 4.42 trillion the previous session.

OUTLOOK

On Thursday, the one-day interbank call money rate is seen near the RBI's repo rate of 5.25%, or higher after the RBI post market hours said it would conduct a four-day variable rate reverse repo operation for INR 1.50 trillion Thursday. This is the first VRRR since Apr. 17 and comes immediately after Malhotra Wednesday said the central bank would use "two-way operations" to manage liquidity. Several traders, however, were expecting the announcement this week and amid a lack of major outflows, the VRRR announcement may not push overnight rates significantly higher, dealers said. 

What is of comfort to traders is Malhotra acknowledging that current surplus liquidity conditions will be short-lived, and hence erased expectations of the RBI bringing measures to absorb durable liquidity surplus. Traders now do not expect measures to drain durable liquidity such as a hike in the cash reserve ratio or RBI sales of government bonds at least this quarter. Traders are also pricing out expectations of a hike in the repo rate in October after mildly "dovish" commentary Wednesday. 

Inspite of the VRRR, overnight rates may fall near the SDF rate by end of trade Thursday amid a lack of major outflows. Surplus liquidity is seen remaining comfortable due to inflows from foreign currency non-resident bank deposits, dealers said. Dealers expect the call rate at 4.60–5.30% Thursday. The tri-party repo rate is expected to be in the 4.60–5.25% band. The weighted average call rate is expected to be in the 5.00–5.25% band, and that in the tri-party repo market is likely to be similar, they said.

CALL RATE

4.60%--Wednesday close for one-day loans

5.10%--Wednesday open for one-day loans

4.60%--Tuesday close for one-day loans

BENCHMARK MIBOR (in %)  

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Below SDF rate; market expects VRRR but split on auction timing

--Dealers: Expect RBI to announce VRRR as soon as this week post MPC remarks 

--Dealers:Liquidity surplus may top INR 5 tln in coming weeks on FCNR inflow 

--Dealers: Do not see RBI taking durable steps to absorb rupee liquidity 

MUMBAI – The one-day interbank call money rate was below the Reserve Bank of India's Standing Deposit Facility rate due to ample liquidity and low demand for funds, dealers said. The tri-party repo rate for one-day loans ended marginally above the Standing Deposit Facility rate of 5.00%. Dealers now expect the RBI to announce a variable rate reverse repo auction, but they are split on whether the central bank would announce it this week or next week. 

At 1747 IST, the one-day call rate was at 4.85%, up from 4.60% Tuesday. The weighted average call rate was 5.05%, marginally down from 5.06% Tuesday. The trade volume in the call money market for one-day loans was at INR 141.29 billion, against INR 119.66 billion at 1730 IST Tuesday.

The tri-party repo rate for one-day loans ended at 5.01% Wednesday, against 4.90% Tuesday. The weighted average rate was at 4.88, unchanged from the previous day. The volume in the broader tri-party repo market was INR 4.34 trillion, against INR 4.42 trillion Tuesday.

Some dealers expect the central bank to conduct a VRRR before the end of this week and as early as Thursday, as the weighted average call rate has been near the Standing Deposit Facility so far this week. Dealers said RBI Governor Sanjay Malhotra stressed the fact that the RBI's operating target, which is the weighted average call rate, should align with the policy rate of 5.25%. The governor said that since the last policy, the weighted average call rate traded within the liquidity adjustment facility corridor, averaging 5.31%.    

"RBI may come up with a VRRR tomorrow (Thursday) as WACR (weighted average call rate) is closer to 5%," a dealer at a small finance bank said. "They (RBI) are comfortable with WACR at 5.31% near the policy rate...," the dealer said. 

However, some dealers expect the RBI to conduct the VRRR auction at the beginning of next week once the outflows of around INR 500 billion for excise duty and tax deducted at source are over on Friday. "RBI may conduct a VRRR at the beginning of next week after these outflows... they (RBI) are just waiting for some clarity," a dealer at a private sector bank said. 

Dealers expect the central bank to announce at least an INR-500-billion variable rate reverse repo auction to push up overnight borrowing rates. The net liquidity absorbed by the RBI – a proxy for liquidity surplus – was at INR 3.34 trillion Tuesday, the highest level since Apr. 20 and sharply up from INR 2.44 trillion Monday. The liquidity surplus rose beyond the INR-2-trillion mark because of inflows from foreign currency non-resident bank deposits and the government's month-end spending, though the increase over the last two days has come from banks cutting their cash balances with the RBI.   

However, after the governor's comments on the current liquidity surplus, a few dealers also expect that the RBI may not announce a VRRR at all. "I think the RBI is comfortable with this liquidity and with very high credit demand, they may not get one (VRRR)," a dealer at a state-owned bank said. At the post-policy press conference, Malhotra said the current liquidity surplus in the banking system is not "extraordinarily" high and is expected to persist only in the short-term.  (J. Navya Sruthi) 

India Call: Near SDF rate on comfortable liquidity; RBI's MPC decision eyed

MUMBAI – The one-day interbank call money rate was near the Reserve Bank of India's Standing Deposit Facility rate of 5.00% Wednesday due to low demand for funds from banks amid comfortable liquidity surplus in the banking system, dealers said. The banking system liquidity rose to the highest level since Apr. 20 which kept overnight rates near the Standing Deposit Facility rate. 

At 0936 IST, the one-day call rate was at 5.10%, up from 4.60% Tuesday. The weighted average call rate was 5.10%, up from 5.06% Tuesday. The trade volume in the call money market was at INR 31.54 billion, against INR 18.70 billion at 0930 IST Tuesday.

At 0937 IST, the tri-party repo rate for one-day loans was at 4.91%, against 4.91% Tuesday. The tri-party repo rate opened at 4.90%, the lowest opening level since Apr. 20, according to data available on Cogencis. The weighted average rate was 4.90%, up from 4.88% Tuesday. The volume in the broader tri-party repo market at the same time was INR 1.44 trillion, against INR 1.16 trillion at 0930 IST Tuesday.

The net liquidity absorbed by the RBI--a proxy for liquidity surplus--was at INR 3.34 trillion Tuesday, sharply up from INR 2.44 trillion Monday as banks reduced their cash balance with the RBI, dealers said. Cash balances with the RBI as on Tuesday were INR 7.92 trillion, down from INR 8.57 trillion Monday. The average daily cash reserve requirement for the fortnight ending Aug. 15 is INR 8.03 trillion.   

Market participants will be closely monitoring the RBI Monetary Policy Committee's decision, and the governor's commentary on liquidity and the weighted average call rate. 

Some dealers speculate that the central bank will announce a variable rate reverse repo post the policy decision due to ample liquidity in the banking system. "Post policy, we can expect RBI to get a VRRR because of liquidity," a dealer at a state-owned bank said. Although there are scheduled outflows Friday for excise duty and tax deducted at source, some dealers still expect a VRRR as these outflows would be offset by coupon payments during the same time.  (J. Navya Sruthi)

End

US$1 = INR 95.1175

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

Edited by Deepshikha Bhardwaj

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