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Informist, Monday, Mar. 3, 2025

By Kabir Sharma

MUMBAI – The weighted average call rate remained above the repo rate of 6.25% on Monday even as systemic liquidity deficit narrowed sharply. According to dealers, a shortfall in government securities for some banks meant they had to resort to borrowing from the uncollateralised call market instead of the triparty repo market.

"TREPS is where all the action is happening. We could see so many lenders waiting but people ran out of bonds to borrow money there, so they came to call and pushed rates up," a dealer at a private bank said. The weighted average call rate was 6.32% on Monday in comparison to 6.04% for the weighted average rate in the much larger triparty repo market, which reflected the easing of liquidity conditions.

As per latest data from the Reserve Bank of India, the net liquidity injected by the central bank--a proxy for the systemic liquidity deficit--stood at just INR 1.18 trillion on Sunday. This is because of inflows from the central government's month-end spending. A week ago, the RBI had injected INR 2.38 trillion into the banking system. The government spending "this time was a little higher than usual," a dealer at a state-owned bank said. "We saw INR 2.0 trillion–INR 2.5 trillion of inflows this time," the dealer added.

The RBI's measures have also been taking effect, with ICICI Bank economists saying that core liquidity had moved into a minor surplus of INR 200 billion as on Feb. 21--a first in seven weeks. Moving ahead, liquidity conditions are seen improving further this week following the settlement of the RBI's dollar/rupee buy/sell swap auction. Conducted on Friday, the auction saw the central bank accept bids worth $10.06 billion. According to dealers, nearly half of the swap amount is to rollover previous contracts. As such, Tuesday is likely to see the infusion of around INR 450 billion of liquidity.

"We expect core liquidity to broadly remain marginally in surplus zone in March in the absence of FX intervention, thereby not necessitating any incremental liquidity easing measures immediately," economists from Kotak Mahindra Bank said in a note Monday.

The easing in liquidity conditions is also reflected in the amount borrowed at Monday's daily variable rate repo auction, where the RBI accepted all the bids aggregating to INR 165.57 billion against the notified amount of INR 250.00 billion.

OUTLOOK

* On Tuesday, 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 a range of 5.75% to 6.40%.

CALL RATE

5.75%--Monday's close for one-day loans

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

5.75%--Saturday'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 on 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 from banks in early trade, dealers said. At 0945 IST, the one-day call rate was at 6.40%, against the close of 5.75% for two-day loans on Saturday. However, dealers expect rates to cool down later in the day due to improved liquidity conditions. 

"Month-end spending, most of which has happened, has eased the rates," a dealer at a private bank said. "The swap (RBI's dollar/rupee swap) settlement is also due tomorrow (Tuesday) so that will also bring inflows," he said. On Friday, the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--was at INR 1.61 trillion, against INR 1.81 trillion on Thursday, as per RBI data.

The RBI conducted a $10-billion dollar/rupee buy/sell swap auction on Friday, under which it bought dollars for immediate delivery and sold 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 rollover of previous contracts, dealers said. The payment for these inflows will take place on Tuesday.
 

As per market participants, inflows for the government's month-end spending are anticipated to bring INR 1.2 trillion to INR 1.5 trillion to the banking system, which should provide some relief for liquidity in the days ahead. The first tranche of inflows took place on Friday and the residual is expected to hit the system today, dealers said. 

At the overnight variable rate repo operation scheduled at 1000-1030 IST, banks and primary dealerships are expected to bid for around INR 125 billion against the notified amount of INR 250 billion. The central bank is expected to set a cut-off of 6.26%.

Following are the other highlights:

* Reversal of a three-day variable rate repo tender will drain INR 162.58 billion from the banking system.

* Scheduled net outflows worth INR 293.63 billion largely on account of payment of government securities. 

* 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 Ashish Shirke

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