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Informist, Monday, Feb. 24, 2025

By Kabir Sharma

MUMBAI – The weighted average call rate remained above the repo rate on Monday as the last leg of payments for the Goods and Services Tax kept borrowing costs elevated, dealers said. The weighted average call rate edged up to 6.33% from 6.29% Friday. The weighted average rate for the larger tri-party repo market--which includes mutual funds--also rose to 6.24% on Monday from 6.18% Friday. Meanwhile, the one-day call rate settled at 5.80%, down from Friday's close of 6.25% for three-day loans.

"Some credit outflows and GST outflows were there during the day, so we knew funds would be needed but (we) were expecting rates to remain lower," a dealer at a private bank said.

The daily variable repo rate auction conducted by the Reserve Bank of India early in the day saw a very muted response, with the central bank only receiving bids for INR 367.75 billion as against the notified amount of INR 1.25 trillion. This was despite the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--having risen to INR 2.38 trillion on Sunday from INR 1.93 trillion Friday.

OUTLOOK

* On Tuesday, the two-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%.

* The RBI will conduct a two-day variable rate repo auction for INR 750.00 billion from 1000-1030 IST.

CALL RATE

5.80%--Monday's close for one-day loans

6.40%--Monday's open for one-day loans

6.25%--Friday's close for three-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo rate on early demand for funds, VRR auction eyed

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.25% on Monday due to demand for funds in early trade for cash reserve requirements, dealers said. At 0940 IST, the one-day call rate was at 6.35% against the close of 6.25% for three-day loans on Friday. 

The weighted average call money rate was 6.39% at 0940 IST, against 6.40% around the same time on Friday. Meanwhile, the weighted average rate in the larger tri-party repo market--which includes mutual funds--was 6.20%, against 6.24% around the same time on Friday. 

On Friday, the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--was at INR 1.93 trillion, against INR 1.88 trillion on Thursday. Despite heavy outflows on Friday, the deficit was little changed. Outflows for goods and services tax would have drained out around INR 800  billion to INR 1 trillion from the banking system on Friday. In total, these outflows would drain INR 1.5 trillion to INR 1.7 trillion from the banking system, dealers said. The last tranche of these outflows will take place during the day, dealers said. 

"On Friday, outflows for GST would have taken place as it can't be delayed more than that but it is not being reflected in liquidity," a dealer at a state-owned bank said. "The impact(of outflows) would have been offset due to inflows from OMO. The money market rates on Friday was also quite low because of VRRs, so banks must have met their demand from there." 

On Friday, scheduled net inflows worth INR 460.78 billion largely on account of RBI's purchase of gilts via open market operation auction on Thursday and redemption of 91-day Treasury bills offset a major chunk of goods and services tax, dealers said. Apart from this, an infusion of INR 1.94 trillion through three rate repo operations also aided system liquidity, dealers said. Following the infusion of funds, money market rates fell sharply on Friday, the effect of which was also seen in the intial trading hours on Monday, dealers said. 

As a result, the overnight variable rate repo operation which will be held at 1000-1030 IST for a notified amount of INR 1.25 trillion is expected to be undersubscribed, dealers said. "The rates have cooled off after RBI's heavy infusion of funds on Friday and is expected to remain like this during the day," a dealer at a private bank said. "This is why I think the won't see good demand as we are able to borrow funds at a cheaper rate." 

Following are the other highlights:

* Reversal of three-day variable rate repo tender will drain INR 949.27 billion from the banking system.

* Scheduled net outflows worth INR 188.78 billion largely due to payment of gilts auction which was offset by inflows for state and central bonds. 

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

End

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

Edited by Deepshikha Bhardwaj

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