MC Analysis | At 6.16%, call money rate is below RBI’s 6.25% repo rate after 4 months

Call Money market

The weighted average call money rate, which  is usually on par or above the Reserve Bank of India’s (RBI's) repo rate, was  below that on March 27. Experts attribute the change in trend to the narrowing liquidity deficit in the banking system. Call money rate is the rate at which banks typically borrow and lend short-term funds.

According to the Clearing Corporation of India’s (CCIL) data, the call money rate  was 6.16 percent, 9 basis points (bps) lower than the repo rate of 6.25 percent.

Given that call money rates falling below the repo is unusual, the March 27 level merits attention. Typically, liquidity is tight in March due to high demand from banks for money supply owing to year-end pressures. This drives call money rates above the repo.

For instance, the weighted average call money rate in March 2023 and March 2024 was in the range of 7.5-8 percent, when the repo was 6.5 percent. This year, the call money rate between March 1 - 26 was about 5 bps above  the repo rate.

In November 2024, the last time that call money rates fell below the repo, liquidity in the banking system was in a huge surplus of over Rs 1.8 lakh crore.

From mid-December last year to February 2025, liquidity in the banking  system has been extremely tight — constantly over the Rs 1.5 lakh crore to Rs 2 lakh crore mark. While March 2025 is no exception to this trend, there were a few days when the RBI injected liquidity through various means such as daily variable rate repo (VRR) auctions, long-term VRR auctions, USD/INR buy/sell swaps, and OMOs (open market operations — purchase of government securities), which eased the situation to some extent.

The RBI infusing liquidity even during the tight periods which lasted till early March, helped the call money rate to an extent as it remained close to the repo.

Measures such as the USD/INR buy/sell swap auction conducted on March 24 and OMO auction on March 25 helped narrow the liquidity deficit significantly. The two auctions are estimated to have injected Rs 1.3 lakh crore into the banking system, when the liquidity deficit was at Rs 1.58 lakh crore.

Apart from this, government spending towards salaries, pensions, and general purposes has also helped ease the liquidity.

According to Kotak Mahindra Bank’s report dated March 24, an inflow of Rs 3.20 lakh crore was expected  on account of government spending during the week March 22 to 31.

“We expect both system and durable liquidity to be in surplus in the coming months. We note that the heavy short-forward book of RBI is expected to strain liquidity on maturity (without rollovers), thereby warranting continued rollovers through FX swaps,” said Upasna Bhardwaj, Economist, Kotak Mahindra Bank.