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Informist, Tuesday, Feb. 18, 2025

By Kabir Sharma

MUMBAI – The interbank call money rate ended above the repo rate of 6.25% on Tuesday as demand for funds from banks remained firm in anticipation of outflows for tax payments ahead of Wednesday's holiday, dealers said. The two-day call rate ended at 6.35% on Tuesday as against 6.00% at close for one-day loans on Monday.

"The GST (goods and services tax) outflows are starting tomorrow (Wednesday) and banks wanted to have enough funds for Thursday. So you saw the rates going up," a dealer at a state-owned bank said. "The weighted average rate again went up despite liquidity being around the same level, so definitely, it is because of upcoming outflows."

The weighted average call rate edged up slightly to 6.35% on Tuesday from 6.34% Monday, with borrowing rates in the larger tri-party repo market--which includes mutual funds--rising to 6.25% from 6.16%. Money markets are shut on Wednesday on account of Chhatrapati Shivaji Maharaj Jayanti.

GST outflows, starting Wednesday, are expected to drain INR 1.50 trillion–INR 1.70 trillion from the banking system. Payment for Tuesday's state bonds auction, worth INR 280.00 billion, will also need to be made on Thursday.

On Monday, banks parked INR 1.12 trillion at the Reserve Bank of India's Standing Deposit Facility, up from INR 846.44 billion on Sunday, suggesting a slight easing of liquidity conditions. However, the net liquidity injected by the central bank--a proxy for the systemic liquidity deficit--was INR 1.81 trillion on Monday, little changed from INR 1.80 trillion on Sunday.

The two-day variable rate repo auction held by the RBI on Tuesday was undersubscribed, with market players borrowing INR 717.73 billion as against the notified amount of INR 1 trillion. "It was not fully subscribed because some deals were happening below repo rate in call and in TREPS (triparty repo) and so people thought they would borrow from there as the day goes on, but the rates did not cool and now they had to borrow it at a high cost," a dealer at a private bank said.

OUTLOOK

* The call market is shut Wednesday. On Thursday, the one-day call rate may open around the repo rate on demand for funds from banks.

* During the day, the call rate is seen in the range of 5.75%-6.40%.

CALL RATE

6.35%--Tuessday's close for two-day loans

6.40%--Tuesday's open for two-day loans

6.00%--Monday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo rate on banks' demand for funds; market shut Wed

MUMBAI – The interbank call money rate was above the repo rate of 6.25% on Tuesday on demand for funds from banks in early trade, with money markets being shut on Wednesday, dealers said. At 1010 IST, the two-day call rate was at 6.35%, against 6.00% at close for one-day loans on Monday. 

The weighted average call money rate was 6.40% at 1030 IST, against 6.34% on Monday. Meanwhile, the weighted average rate in the larger tri-party repo market--which includes mutual funds--was 6.24%, against 6.18% on Monday.

Banks had to meet funding requirements for two days, driving up rates, dealers said. Money markets are shut Wednesday on account of Chhatrapati Shivaji Maharaj Jayanti. The net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--was at INR 1.81 trillion on Monday, largely unchanged from INR 1.80 trillion on Sunday.

"With GST (goods and services tax) outflows starting this week and a holiday tomorrow, rates will remain on the higher side and the VRR will also see good subscription," a dealer at a state-owned bank said. Dealers estimate outflows for goods and services tax payments to be in the line of INR 1.5 trillion-INR 1.7 trillion. 

The two-day variable rate repo auction between 1000-1030 IST is expected to see full subscription with the median cut-off being 6.26%. The two variable rate repo auctions held by the RBI on Monday saw varied responses. On Monday, banks parked INR 1.12 trillion in the standing deposit facility, from INR 846.44 billion the previous day, highlighting a slight ease in systemic liquidity.

The overnight auction on Monday was oversubscribed with bids worth INR 1.35 trillion against the notified amount of INR 1.00 trillion--which the RBI accepted. However, the central bank only got bids for INR 574.13 billion at the four-day operation against the notified amount of INR 750.00 billion. 

Following are the other highlights:

* Reversal of overnight variable rate repo tender will drain INR 1.00 trillion from the banking system.

* During the day, the call rate is seen in a range of 5.75-6.45%. (Kabir Sharma)

End

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

Edited by Saji George Titus

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