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Informist, Wednesday, Mar. 5, 2025

 

MUMBAI – The overnight Mumbai Interbank Offer Rate was set at its lowest level in over two years on Wednesday as banking system liquidity conditions improved and brought down lending rates in money markets, dealers said. The overnight MIBOR fell to 6.29% on Wednesday from 6.37% on Tuesday.

 

MIBOR is the benchmark for the Indian call money market. The overnight MIBOR was at this level last on Feb. 7, 2023, with the same repo rate of 6.25%, before the Reserve Bank of India's Monetary Policy Committee hiked the policy rate by 25 basis points. While collaterised lending rates were near the policy rates, the uncollateralised triparty repo market's weighted average rate was well below the repo rate, dragging down the benchmark, dealers said. 

 

"TREPS started at 5.90% today (Wednesday) and see where the liquidity is, so MIBOR had to come down, we are not surprised at all," a dealer at a state-owned bank said. The weighted average triparty repo rate fell to 5.90% as of 1630 IST, near the same level that it was around the same time Tuesday. 

 

The net liquidity injected by the RBI fell to INR 204.17 billion on Tuesday, sharply lower than INR 1.10 trillion on Monday, and the lowest since Dec. 15. Liquidity conditions eased this week on the back of inflows from the settlement of the $10.06 billion dollar/rupeee swap auction conducted on Friday, dealers said. The auction is estimated to have infused INR 870 billion into the banking system. 

 

"RBI's recent swap of $10 billion (largest so far) has calmed the market participants' frayed nerves, indicating the central bank is willing to walk the extra mile to restore sanity, infusing long term liquidity, while keeping the cost dynamics in mind. It should also help corporates in better asset-liability management even as more B/S (buy/sell) swaps of longer duration could be considered to shore up reserves and release liquidity to counter the stress," Soumya Kanti Ghosh, SBI's group chief economic adviser, said in a report Tuesday.

 

The overnight MIBOR serves as a benchmark rate for floating rate notes, corporate debentures, term deposits, interest rate swaps, and forward rate agreements. The valuation of overnight indexed swaps, a form of overnight interest rate swap utilised for hedging interest rate risk, depends on overnight MIBOR. The single-day fall did not have a significant impact on short-term OIS rates, though these rates have eased after the RBI's liquidity support has prevented the benchmark rate from rising above the Marginal Standing Facility rate of 6.50%.

 

Despite the fall, the overnight MIBOR rate remains above the repo rate, a usual sight since since mid-November. It will likely rise further later this month as liquidity conditions are expected to worsen due to large scheduled outflows in March.

 

"This is just a blip, the rates will rise again as soon as outflows for advance tax payment start," a dealer at a private bank said. "The demand for credit is strong and year-end anyway liquidity is tight so it is not possible for MIBOR or TREPS to sustain at this level for too long."  End

 

US$1 = INR 86.96

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

 

Reported by Kabir Sharma

With inputs from Cassandra Carvalho

Edited by Tanima Banerjee

 

 

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