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Informist, Wednesday, Sept. 2, 2026

 

By Aaryan Khanna

 

NEW DELHI – The one-day overnight call money rate Wednesday ended at its lowest closing level in nearly a month, well below the Reserve Bank of India's Standing Deposit Facility rate. Surplus liquidity in the banking system surged to an over four-year high and depressed overnight money market rates sharply despite the RBI's variable rate reverse repo auction, dealers said. 

 

The one-day call rate ended at 4.70% from 5.10% at the open and 4.75% at Tuesday's close. The weighted average call rate was 5.02%, from 5.16% Tuesday. The trade volume in the contract was INR 106.78 billion from INR 117.61 billion Tuesday.

 

The one-day tri-party repo rate ended at 4.07% Wednesday, down from 4.90% at the open and 4.50% at Tuesday's close. The one-day rate only briefly touched the SDF rate, the lower bound of the RBI's liquidity adjustment facility corridor, which was the day's high. The weighted average rate was 4.68%, down from 4.82% Tuesday. The volume in the contract was INR 4.92 trillion, against INR 4.79 trillion Tuesday.

 

"Only some scattered market segments who have not participated in the FCNR scheme or these primary dealers have any demand for liquidity," a dealer at a private-sector bank said. "Otherwise, all segments are flush with liquidity."

 

The net liquidity absorbed by the RBI, a proxy for the liquidity surplus in the banking system, hit INR 7.76 trillion Tuesday, from INR 6.65 trillion Monday. These levels of surplus liquidity were last seen in April 2022. Along with the Centre's month-end expenditure for salaries and pensions, inflows from banks swapping dollars received from foreign currency non-resident (banks) deposits aided liquidity. Bankers had expected the inflows to top $100 billion by Aug. 31. Data released after market hours showed the final figure under the central bank's concessional scheme to attract these deposits was $127.23 billion.

 

This increased the subscription at the RBI's overnight VRRR auction. The central bank accepted all offers worth INR 4.60 trillion at the INR 5.00-trillion auction. Even after funds were parked with the RBI, money market rates continued to trade well below the policy repo rate of 5.25%, dealers said. 

 

"The overnight rates are crashing," a dealer at a primary dealership said. "Don't know what he (RBI) will do now."

 

OUTLOOK

Thursday, the one-day call rate is expected to open below the RBI's repo rate of 5.25% due to the large liquidity surplus in the banking system, dealers said. Banks will be easily able to meet early demand for funds from primary dealers from funds parked in the SDF window.

 

The swapping of FCNR(B) inflows and government spending are likely to have further increased systemic liquidity Wednesday, dealers said. The RBI will conduct an overnight VRRR auction for INR 6.00 trillion at 0930-1000 IST Thursday. This is after a 15-day auction Monday and a seven-day tender Tuesday were poorly subscribed and followed by overnight VRRRs.

 

With the "excessive" liquidity in the banking system, traders look ahead to the RBI's measures to drain the surplus and bring back the call rate to near the repo rate, dealers said. These include a hike in the cash reserve ratio for banks, an incremental CRR of FNCR(B) deposits being imposed, or a market stabilisation scheme being deployed, dealers said.

 

Dealers expect the one-day call rate at 4.60–5.25% Thursday. The tri-party repo rate is expected to be in the 4.50–5.20?nd. The weighted average rate in the call market is seen in the 4.90–5.20?nd, and the tri-party repo rate is likely to be 4.50-5.10%, dealers said.

 

CALL RATE

4.70%--Wednesday close for one-day loans

5.10%--Wednesday open for one-day loans

4.75%--Tuesday close for one-day loans

 

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

 

TENURE	WEDNESDAY	TUESDAY
Overnight	5.08	5.23
3-day	--	--
14-day	5.79	5.81
1-month	6.02	6.04
3-month	6.55	6.56

 

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India Call: Near SDF rate in thin trade; liquidity surplus at over-4-yr high

 

MUMBAI – The one-day interbank call money market opened at about 1000 IST with thin trade near the Reserve Bank of India's Standing Deposit Facility rate. There was little demand for funds amid a liquidity surplus which is at its highest in over four years, dealers said. The net liquidity absorbed by the RBI — a proxy for liquidity surplus — hit INR 7.76 trillion Tuesday, from INR 6.65 trillion Monday. Along with the Centre's month-end expenditure for salaries and pensions, inflows from banks swapping dollars received from FCNR(B) deposits aided liquidity. Traders await official data from the RBI on the total inflows garnered under its special scheme for such deposits, with market participants expecting inflows to have topped $100 billion. In an exchange filing Wednesday, ICICI Bank said it raised $17.88 billion through these special deposits till Aug. 31, much more than traders expected, and increased bets that figures across banks would surprise on the higher end, dealers said. Foreign banks have received significant inflows in the past few sessions, dealers said. 

 

With such a large surplus liquidity, participation at the RBI's overnight variable rate reverse repo operation for INR 5 trillion increased, compared to past operations, with the RBI taking all offers worth INR 4.60 trillion. However, even with the VRRR, overnight money market rates were much lower than the repo rate, with some expectations of the RBI introducing measures to drain durable liquidity this week itself, they said. Some dealers expect such measures only next month at the RBI's Monetary Policy Committee meeting outcome. 

 

Intraday, traders preferred borrowing in other money markets besides call, such as in the tri-party and repo markets, with volumes in the tri-party repo market rising. "Now everyone has enough liquidity from the flows, so who will want to borrow in call? It'll just be some RRBs (regional rural banks) who will borrow through banks, (and) not (from) mutual funds (in TREPS)," a dealer at a state-owned bank said.  

 

At 1000 IST, the one-day call rate was at 5.10% against 4.75% at Tuesday's close. The weighted average call rate was 5.10%, from 5.16% Tuesday. The trade volume on the same contract was INR 4.74 billion at 1000 IST from INR 49.80 billion at 1030 IST Tuesday. At 1000 IST, the one-day tri-party repo rate was 4.84%, against 4.50% at Tuesday's close. The weighted average rate was 4.80%, from 4.82% Tuesday. The volume on the same contract was INR 2.38 trillion at 1000 IST, from INR 1.82 trillion at 1030 IST Tuesday.  End

 

US$1 = INR 94.9700

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

 

Edited by xx

 

 

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