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Informist, Saturday, Sept. 5, 2026

 

By Cassandra Carvalho

 

MUMBAI – The two-day interbank call money rate plunged to end sharply below the Reserve Bank of India's Standing Deposit Facility rate of 5.00% Saturday amid lack of demand for funds. Volumes were abysmally low, even less than those usually seen on Saturdays, and the weighted average rate tumbled to 3.87% amid ample liquidity surplus. The liquidity surplus, which is already 3.83% of banks' net demand and time liabilities as of Thursday, is seen rising further over the weekend, due to redemption of the 6.97%, 2026 gilt and inflows from dollars swapped with the RBI under its window for foreign currency non-resident bank deposits, dealers said. The two-day tri-party repo rate fell to a day's low of 1.50%, the lowest since late 2022.

 

Attention is on the RBI's decision to conduct a 30-day variable rate reverse repo operation with the option of premature reversal Monday. Several traders do not expect more than 70% subscription despite the option of premature reversal due to its long tenure, while some traders also expect the central bank to conduct an overnight VRRR after the 30-day operation. "I think the (30-day) VRRR will only see 50-60% subscription," a dealer at a private-sector bank said. "We'd rather put (invest) the rest of that money into CP, CDs and get a higher rate (of return than the maximum cut-off at the VRRR)." Banks and corporates have rushed to issue short-term securities such as certificates of deposit and commercial paper as rates have plunged due to surplus liquidity. Banks would also prefer parking funds in an overnight VRRR. Some traders said the VRRR was unlikely to be successful in draining surplus liquidity since mutual funds were sitting on a large surplus, and they are not allowed to participate in VRRRs. Nonetheless, money market rates are seen lower Monday across instruments, as the RBI refrained from currently conducting a measure to drain durable liquidity such as hikes in the cash reserve ratio, which could compress banks' net interest margins, dealers said.

 

The two-day call rate hit a high of 6.00% Saturday--while it had not risen above the repo rate of 5.25% since Aug. 27--likely due to an erroneous trade, dealers said. At 1602 IST, a trade was conducted for INR 47 million at 6%, while the bid and ask rates were 4.70% and 3.25%, respectively. 

 

The two-day call rate ended at 3.25% from 5.00% at Friday's close for three-day loans. The weighted average call rate was 3.87% from 4.94% Friday. The trade volume in the contract was INR 11.32 billion, falling further from INR 46.98 billion Friday. The two-day tri-party repo rate ended at 4.00% Saturday, from 3.48% at Friday's close. The weighted average rate was 2.99%, sharply down from 4.22% Friday. The volume in the contract was INR 159.69 billion against INR 4.79 trillion Friday.

 

OUTLOOK

Monday, the one-day call rate is seen near the RBI's Standing Deposit Facility amid hefty surplus liquidity. Borrowers are likely to prefer borrowing funds from the tri-party repo market, leading to poor volume in the call market. Liquidity could top INR 12 trillion over the weekend, dealers said. Excise duty outflows of about INR 400 billion are scheduled by Monday, dealers said, but is of little size compared to the large surplus liquidity in the system. Attention will be on participation at the RBI's 30-day VRRR, and whether the central bank conducts an overnight operation after it. Outflows for advance tax and goods and services tax payments later this month will drain about INR 5 trillion. By the RBI's next policy meeting in October--which is the same day as the reversal of the 30-day VRRR--core systemic liquidity could top INR 10 trillion, which could merit permanent measures to drain the liquidity surplus, dealers said. Dealers expect the one-day call rate at 4.00–5.20% Monday. The one-day tri-party repo rate is expected to be in the 3.50–5.15?nd. 

 

CALL RATE

3.25%--Saturday close for two-day loans

4.85%--Saturday open for two-day loans

5.00%--Friday close for three-day loans

 

End

 

US$1 = INR 94.4850

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

 

Edited by Deepshikha Bhardwaj

 

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