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Informist, Thursday, Jul. 2, 2026

By Aaryan Khanna

NEW DELHI – The one-day interbank call money rate eased further and ended well below the Standing Deposit Facility rate of 5.00% for the second straight day. The easing rates were a reflection of falling demand for funds in the money markets as systemic liquidity improved over the past two days due to the government's month-end spending, dealers said.

The one-day call money rate ended at 4.60%, flat against Wednesday's close and down from 5.35% at the open. The weighted average call rate was at 5.27%, similar to 5.28% Wednesday. The volumes in the one-day contract fell to INR 169.96 billion Thursday, sharply lower than INR 211.16 billion Wednesday.

"Borrowing requirements have come down quite a bit since the remainder of the government spending came in yesterday (Wednesday)," a dealer at a state-owned bank said. "As banks are relying on their own funds, volumes have also come down since yesterday because there is less demand in both call and TREPS." 

The net liquidity absorbed by the RBI – an indication of surplus liquidity in the banking system – was INR 864.69 billion Wednesday, down from INR 1.13 trillion Tuesday, according to the latest data. Banks increased their cash balances with the RBI by nearly INR 800 billion overnight to INR 8.78 trillion Wednesday, bringing down the net liquidity absorbed. Netting out the change, systemic liquidity improved due to strong government spending for salaries and pensions for the second straight day, dealers said. 

The one-day tri-party repo rate ended at 5.05%, down sharply from 5.25% Wednesday. The weighted average rate fell to 5.10% from 5.22% Wednesday. The volume in the overnight contract was INR 4.78 trillion, down from INR 5.07 trillion in the previous session. Mutual funds were willing to lend at lower rates both due to decreased demand for funds from banks and also an improvement in their own liquidity positions, having received inflows into liquid schemes at the beginning of the September quarter, dealers said.

Call money rates rose early due to demand from primary dealerships, though the weighted average call rate is expected to fall to or below the repo rate by early next week. There are no scheduled outflows for another week and foreign exchange inflows may potentially improve liquidity conditions, dealers said. The RBI has introduced a swap window for banks to hedge three- to five-year foreign currency non-resident bank deposits and offshore foreign currency borrowings, with early signs of a pickup coming this week.

"Some banks have started using the (RBI) swap window, which should lead to better rupee liquidity," a dealer at a private-sector bank said. "But it has been difficult to track or attribute any change in liquidity to that so far since amounts look to be quite small."

Axis Bank raised $800 million through two dollar bonds and HDFC Bank raised $750 million through the route in the latter half of June, which they have likely converted to rupees by using the RBI's concessional swap window offering a hedge cost of 1.50% per annum, dealers said. More offerings and a rise in FCNR(B) deposits will take another week to reflect, removing the need for the central bank to conduct any variable rate repo auctions in the coming weeks, they said. 

OUTLOOK

On Friday, the three-day interbank call money rate is expected to open around the RBI's repo rate of 5.25% on early demand from primary dealers ahead of the weekly gilt auction, dealers said. Call money rates are expected to ease later in the day with systemic liquidity in a surplus and no major scheduled outflows on Friday, they said.

The maturity of the two-day RBI VRR auction for INR 296.95 billion is unlikely to materially drag up money market rates, though it may increase banks' demand for funds during the day, dealers said. Dealers expect the call rate to be at 4.60–5.40% Friday. The tri-party repo rate is expected to be in the 4.90–5.45% band. The weighted average call rate is expected to be in the 5.25–5.35% band, and that of the tri-party repo market is likely to be in the 5.05–5.30% band, they said.

CALL RATE

4.60%--Thursday close for one-day loans

5.35%--Thursday open for one-day loans

4.60%--Wednesday close for one-day loans

BENCHMARK MIBOR (in %)  

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Eases below SDF, early demand keeps weighted avg elevated

MUMBAI – The one-day interbank call money rate fell below its opening level and was below the Reserve Bank of India's Standing Deposit Facility rate of 5.00% on Thursday due to the absence of significant outflows and improving liquidity conditions in the banking system, dealers said. However, the weighted average call rate remained above the repo rate as primary dealerships and some banks borrowed heavily during the early hours of trade to fulfil their daily requirements, they said. 

Dealers said overnight rates are likely to remain subdued through the week as liquidity continues to improve, and no significant outflows are scheduled over the next few days. "There are no major outflows lined up this week, and liquidity in the banking system is improving. So, overnight rates should remain below the repo rate," a dealer at a public sector bank said.

Dealers, however, differed on whether the government's month-end expenditure was entirely reflecting in banking system liquidity. While some said most of the spending had already reached banks, others said the impact would become more visible over the coming days. "Inflows have already started coming in, but government spending usually happens in tranches. We will see the full impact of these inflows by next week," a dealer at another public sector bank said. 

Market participants don't expect the central bank to conduct a variable rate repo auction this week, given the comfortable liquidity conditions. However, the central bank may conduct an overnight VRR auction next week, when outflows for excise duty begin, to prevent overnight rates from rising sharply. "Liquidity (banking system liquidity) could move towards a surplus of around INR 2 trillion next week as government spending gathers pace. FCNR(B)-related (foreign currency non-resident bank deposits) inflows are also expected in the upcoming days, which will further support liquidity," a dealer at private sector bank said. 

The net liquidity absorbed by the RBI – an indication of surplus liquidity in the banking system – was INR 864.69 billion Wednesday, down from INR 1.13 trillion Tuesday, according to the latest data. The liquidity decreased as banks increased their cash balances with the RBI to INR 8.78 trillion Wednesday from INR 7.95 trillion Tuesday. Cash balances are higher than the average requirement of INR 7.98 trillion for the fortnight ending on Jul. 15. 

At 1346 IST, the one-day call rate was 4.95%, sharply lower than 5.35% at open but higher than 4.60% at Wednesday's close. The weighted average call rate was 5.31%, up from 5.28% Wednesday. At 1346 IST, the trade volume in the overnight contract was INR 126.17 billion, lower than INR 164.43 billion at 1330 IST Wednesday. 

At 1346 IST, the one-day tri-party rate was 5.01%, lower than 5.20% at the open, and also below 5.25% at Wednesday's close. The weighted average tri-party rate was 5.13%, lower than 5.22% Wednesday. At 1346 IST, the trade volume was INR 3.92 trillion, slightly higher than INR 3.58 trillion at the same time Wednesday. (Shumaila Firoz) 

India Call: Up on early demand from PDs, may fall on lack of major outflows

MUMBAI – The one-day interbank call money rate rose Thursday and was above the Reserve Bank of India's repo rate of 5.25% due to early demand for funds from primary dealerships and some banks, dealers said. However, they expect the call money rate to fall during the day due lack of major outflows and improved liquidity in the banking system.  

"By the quarter-end, most banks step up deposit mobilisation to maintain a healthy loan-to-deposit ratio. With fresh deposits on their books at the start of the new quarter, banks have fund, and I believe rates won't go above repo after early demand," a dealer at a private sector bank said. The call rate is likely to remain around the RBI's Standing Deposit Facility rate of 5.00% during the day, dealers said. Lack of major outflows during the day are likely to keep overnight rates at the lower end of the Liquidity Adjustment Facility corridor during the day, they said.

The net liquidity absorbed by the RBI – an indication of surplus liquidity in the banking system – was INR 864.69 billion Wednesday, down from INR 1.13 trillion Tuesday, according to the latest data. The Liquidity decreased as banks increased their cash balances with the RBI to INR 8.78 trillion Wednesday from INR 7.95 trillion Tuesday. Cash balances are higher than the average requirement of INR 7.98 trillion for the fortnight ending on Jul. 15. 

At 0930 IST, the one-day call money rate was 5.35%, sharply higher than 4.60% Wednesday. The weighted average call rate was 5.35%, higher than 5.28% Wednesday. The traded volume in the call money market was INR 25.18 billion, up from INR 10.50 billion at 0930 IST Wednesday. At 0930 IST, the one-day tri-party repo rate was 5.06%, sharply down from 5.25% Wednesday. The weighted average rate was 5.15%, lower than 5.22% the previous day. The turnover in the tri-party repo market was INR 978.52 billion, lower than INR 1.36 trillion at 0930 IST Wednesday. 

"Redemption pressure on mutual funds has also eased after the quarter-end. At the beginning of a new quarter, mutual funds typically receive fresh inflows, leaving them with surplus funds to lend in the overnight market," a dealer at another private sector bank said.  (Shumaila Firoz) 

End

US$1 = INR XX.XX

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

Reported by

Edited by Deepshikha Bhardwaj

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