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Informist, Wednesday, Mar. 5, 2025

By Kabir Sharma

MUMBAI – The weighted average call rate on Wednesday fell below the repo rate for the first time on a weekday since the Reserve Bank of India's Monetary Policy Committee cut the policy rate on Feb. 7 as considerable improvement in liquidity conditions dragged borrowing costs lower, dealers said. At 6.23%, the weighted average call rate on Wednesday was 4 basis points lower from Tuesday and down for the third day in a row this week after having ended last week at 6.36%. The weighted average rate in the triparty repo market also trended lower to 5.90%.

According to latest data from the RBI, the net liquidity injected by the central bank--a proxy for the systemic liquidity deficit--fell to INR 204.17 billion on Tuesday, the lowest level since Dec. 15, and down INR 893.75 billion from Monday. The sharp fall in the net liquidity injection was almost exactly equal to the $10.06 billion dollar/rupee buy/sell swap auction conducted on Friday, which was settled on Tuesday.

"TREPS was expected to ease, but it went as low as 5.65% today (Wednesday) which was a surprise because no one was expecting full delivery of the swap," a dealer at a state-owned bank said. The improvement in liquidity conditions was also visible in the lack of interest at the daily variable rate repo auction, where only INR 50.89 billion was borrowed against the notified amount of INR 250.00 billion.

However, conditions are expected to tighten in the coming days, with outflows of around INR 500.00 billion expected on Friday on account of excise duty and tax deducted at source payments. The end of next week will see quarterly advance tax payments of around INR 1.50 trillion and dealers expect borrowing costs to increase. "This (fall in rates) is temporary. Starting Friday, you will see rates go back up as outflows start and people will also accumulate funds keeping in mind advance tax outflows, GST flows, and also year-end credit demand," a dealer at a private bank said.

OUTLOOK

* 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 a range of 5.75-6.40% and the triparty repo rate is seen in the range of 5.75-6.25%.

* The RBI will conduct an overnight variable rate repo auction for INR 250 billion from 1000 IST to 1030 IST.

CALL RATE

5.95%--Wednesday's close for one-day loans

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Improvement in liquidity lowers TREPS; call stays above repo

MUMBAI – Rates in the triparty repo market fell below the RBI's standing deposit facility rate of 6.00% Wednesday as the net liquidity injected by the central bank--a proxy for the systemic liquidity deficit, fell to its lowest level since Dec. 15, data from the RBI showed. The call money market rates remained above the repo rate of 6.25% due to high demand for funds from banks in early trade.  

The net liquidity injected by the RBI fell to INR 204.17 billion on Tuesday, sharply lower than INR 1.10 trillion on Monday. The proxy for liquidity deficit fell on the back of inflows from the settlement of the INR $10.06 bln dollar/rupeee swap auction which the central bank conducted on Friday, dealers said. "This has surprised everyone, we were expecting that some amount would be rolled over but looks like the entire INR 870 billion has flown into the system," a dealer at a private bank said.  

The improvement in liquidity conditions also brought down weighted average triparty repo rate to 5.92% at 0935 IST on Wednesday, 13 basis points lower than around the same time on Tuesday. The weighted average call rate also eased by 7 bps but remained above the repo rate at 6.31%. "The TREPS rates will remain around this level till mid-month because the excise and tax deducted at source outflows on Friday are only around INR 500 billion, so it won't affect the system much," a dealer at a state-owned bank said. 

The sharp increase in banking system liquidity also led to banks parking INR 2.18 trillion in the standing deposit facility on Tuesday, sharply higher than INR 1.49 trillion on Monday. "We were expecting inflows but not this much, TREPS is at 5.90% now so its better to park at SDF as there is not enough demand in call, this amount can even rise further," a dealer at another state-owned bank said. 

Dealers also speculated that the variable rate repo auction between 1000-1030 IST will not see many bids on Wednesday because of the ease in rates in the money market. The cut-off is expected to be 6.26% and a total of just INR 50 billion is expected in bids against the notified amount of INR 250.00 billion.  

Following are the other highlights:

* Outflows for payment of state government bonds will drain INR 505.00 billion from the banking system. 

* During the day, the call rate is seen in a range of 5.75-6.40%. (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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