RBI Governor Sanjay Malhotra Flags Concerns Over Disparities in Call Money, Repo, and TREPS Rates: Report

Sanjay Malhotra, the Governor of Reserve Bank of India (RBI) raised concerns about falling liquidity in the call money market while speaking at the 24th FIMMDA-PDAI Annual Conference in Bali. He also stressed the need to build a short-term, risk-free rate structure, especially for the three-day to three-month period, according to a report by news agency Reuters.

RBI Governor Flags Call Money, Market and TREPS Rates

The Governor pointed out that disparities in the call money rate, market repo rate, and Treasury Bills Repurchase (TREPS) rate are serious issues and that lenders need to be proactive. RBI Governor Malhotra, "The occasional asymmetries call for more proactive functioning by banks - the entities with sole access to RBI's liquidity facilities, the call money market and the repo markets to ensure that RBI's liquidity measures are promptly and seamlessly transmitted to the broader market," as cited in a Reuters report.

The Call Money Rate is the interest rate at which banks lend and borrow money from each other for just one day, helping them manage daily cash needs. The Market Repo Rate is the rate at which one bank borrows money from another by offering government bonds as security, kind of like borrowing money and giving a safe asset in return. TREPS or Treasury Bills Repurchase is a similar system where banks and financial institutions lend and borrow money for very short periods, using government Treasury Bills as a guarantee, making it a safe and quick borrowing option.

Swap Market Not Ideal for Hedging, Says Governor Sanjay Malhotra

The governor said that the swap market which is based on an overnight rate might not be the most appropriate way to hedge exposures. "At least, a market for basis swap instruments needs to be developed to manage the associated basis risks...going forward, derivatives based on the Secured Overnight Rupee Rate (SORR) will also need to be developed," the governor said.

Creating a short-term, risk-free term structure is also essential, according to Malhotra, especially for the three-day to three-month range. A benchmark for pricing different interest rate items, such loans, would be this structure.

Regarding the financial markets, the governor stated that all of its segments including the money markets, government securities, and forex have mainly been steady.

Rupee Recovery and Resilience in Government Securities Market

The governor added, the rupee has recovered even after experiencing some pressure earlier. Additionally, he pointed out that the government securities market held up well through the financial year 2025 (FY25), even while equities markets saw corrections brought on by capital outflows, as per Reuters report.