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Informist, Tuesday, Feb. 25, 2025

By Siddhi Chauhan and Kabir Sharma 

MUMBAI – The weighted average call rate was again above the repo rate on Tuesday on demand for funds from banks amid consistently tight liquidity conditions, dealers said. The weighted average call rate was at 6.31% against 6.33% on Monday, while the weighted average rate in the larger tri-party repo market--which includes mutual funds--was marginally lower than the repo rate at 6.23%, broadly unchanged from 6.24% Monday.

The two-day call rate settled at 5.90% on Tuesday against Monday's close of 5.80% for one-day loans. Financial markets will be shut Wednesday on account of Mahashivratri. The two-day variable rate repo auction for INR 750.00 billion held on Tuesday was oversubscribed, with market players bidding to borrow as much as INR 1.15 trillion.

"The demand at VRR auction was quite high today (Tuesday) because some banks will still be open (on Wednesday), so all the scheduled inflows or outflows will take place. So banks will have to make a provision for that as well. This has driven demand for funds today which is also keeping money market rates high," a dealer at a state-owned bank said.

Wednesday is not a holiday under the Negotiable Instruments Act for the north-east part of India, Chennai, Kolkata, and New Delhi, among others.

According to analysts at CareEdge Ratings, while the Reserve Bank of India's actions in recent weeks have helped improve liquidity conditions, they "remain tight" and "further measures are needed to ease liquidity conditions and support the transmission of RBI rate cuts".

As per latest data, the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--narrowed to INR 1.93 trillion on Monday from INR 2.38 trillion Sunday. According to CareEdge Ratings, average banking system liquidity deficit in the first 20 days of February was INR 1.5 trillion, down from INR 2.0 trillion in January.

OUTLOOK

* Money markets are shut on 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

5.90%--Tuesday's close for two-day loans

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo rate; high money market rates to drive VRR demand

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.25% on Tuesday due to demand for funds in early trade for cash reserve requirements, dealers said. At 0945 IST, the two-day call rate was at 6.40%, against the close of 5.80% for one-day loans on Monday. 

The weighted average call money rate was 6.45% at 0940 IST, unchanged from the same time on Monday. Meanwhile, the weighted average rate in the larger tri-party repo market--which includes mutual funds--was 6.27%, against 6.22% around the same time on Monday. 

On Monday, the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--narrowed to INR 1.93 trillion from INR 2.38 trillion on Sunday, as per RBI data. The liquidity deficit narrowed despite scheduled net outflows of INR 188.78 billion for payment for gilts auction which was largely offset by inflows for state and central bonds. 

"If you look at the cash balance maintained by banks on Monday, they have come down by more than INR 300 billion from Sunday. Whatever excess balance which would have to be maintained by banks of Friday would have transferred to SDF, which on the next day would have been reflected in the cash balances," a dealer at a state-owned bank said. "This excess cash now is being reflected in liquidity." 

As per prudential norms, banks have to maintain a cash reserve ratio with the central bank averaged across the fortnight. For the fortnight ending Mar. 7, banks are supposed to maintain an average cash balance of INR 9.23 trillion with the RBI. On Monday, the cash balance maintained by banks fell to INR 9.08 trillion from INR 9.41 trillion on Sunday. Consequently, banks increased funds parked under the standing deposit facility to INR 784.91 billion on Monday from INR 649.77 billion on Sunday, RBI data showed. 

On Monday, money market rates rose due to the last tranche of outflows for goods and services tax, and the impact of this was also seen in the initial trading hours, dealers said. Money market rates are expected to remain high during the day as well, dealers said. As a result, the two-day variable rate repo auction worth INR 750 billion is expected to see subscription of around 80%, dealers said. 

Following are the other highlights:

* Reversal of a three-day variable rate repo tender will drain INR 367.75 billion from the banking system.

* Scheduled net inflows worth INR 170.61 billion largely on account of redemption and coupon on state 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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