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Informist, Thursday, Feb. 27, 2025

By Kabir Sharma

MUMBAI – The weighted average call rate remained high amid consistently tight liquidity conditions and ended another trading session above the Reserve Bank of India's repo rate of 6.25% on Thursday, dealers said. The weighted average call rate was at 6.31% unchanged from 6.31% on Tuesday, while the weighted average rate in the larger tri-party repo market--which includes mutual funds--was marginally lower than the repo rate at 6.21%, from 6.23% on Tuesday. Financial markets were shut on Wednesday on account of Mahashivratri.

Despite the RBI's various measures to infuse liquidity in the system, the weighted average call rate has ended above the repo rate almost every day, barring working Saturdays, after the repo rate was cut on Feb. 7.

The RBI will conduct a $10-billion dollar/rupee buy/sell swap auction on Friday, under which it will buy dollars for immediate delivery and sell them for delivery after three years, in order to meet the durable liquidity needs of the system. The swap is expected to infuse liquidity to the tune of INR 450 billion as nearly 50% of the swap is for the roll over of previous contracts, dealers said. 

On Wednesday, the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--was at INR 1.97 trillion largely unchanged from INR 1.96 trillion on Tuesday, as per central bank data. The liquidity deficit was little changed from the previous day's figure as no significant inflows or outflows occured on Tuesday and Wednesday. 

Dealers said Thursday was a dull day and there was no activity beyond the usual expected flows in the money market market. While most market participants had expected 100% subscription at the variable rate repo auction, some were left surprised by the extent of the demand for funds as liquidity is expected to improve in the coming days. The RBI got bids for INR 499.55 billion against the notified amount of INR 500.00 billion, and set a cut-off rate of 6.26%. 

"I had expected a much lower subscription because inflows for month end spending will start from tomorrow," a dealer at a state-owned bank said. "If the rates are going to (be) cheaper tomorrow and I don't have any major funds requirement why would I borrow at a higher rate?" Inflows to the tune of INR 1.5 trillion are expect to hit the banking system starting Friday on account of month-end spending by the government. 

OUTLOOK

* On Friday, the three-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

5.85%--Thursday's close for one-day loans

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above RBI's repo rate; money market rates unch from Tuesday

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.25% on Thursday on demand for funds from banks in early trade for cash reserve requirements, dealer said. At 0930 IST, the one-day call rate was at 6.40% against the close of 5.90% for two-day loans on Tuesday. Financial markets were shut on Wednesday on account of Mahashivratri.

The weighed average call money rate was at 6.40% at 0930 IST, unchanged from Tuesday at the same time. Meanwhile, the weighted average rate in the larger tri-party repo market--which includes mutual funds-- was at 6.26% similar from Tuesday's level around the same time. 

On Tuesday, the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit-- was at INR 1.96 trillion from INR 1.93 trillion on Monday, as per the RBI data. The liquidity deficit was little changed from the previous day's figure as no significant inflows or outflows occured on Tuesday. 

Due to little change in deficit and no significant inflows or outflows scheduled for the day, money market rates are expected to remain at similar levels, dealers said. "I think that the weighted average call rate will remain within the range of 6.40% to 6.45% while the weighted average triparty repo rate is expected to be around 6.30%," a dealer at a private bank said. 

At the overnight variable rate repo operation, banks and primary dealerships are expected mop up the entire INR 500 billion, dealers said. The central bank is expected to set the cut-off rate at 6.26%. "Since the auction amount is quite small, I don't think there will be an issue, banks will most likely pick the entire amount," a dealer at a state-owned bank said. 

The liquidity is expected to see some respite in the coming days as inflows for government month end spending are expected to add INR 1.2 trillion to INR 1.5 trillion into the banking system, dealers said. The first tranche of the inflows will likely begin from Friday, dealers said. 

Following are the other highlights:

* Reversal of a two-day variable rate repo tender will drain INR 750.12 billion from the banking system.

* Scheduled net outflows worth INR 46.69 billion largely on account of payment on state bonds was offset by inflows from redemption of Treasury bills and 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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