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Informist, Thursday, Mar. 6, 2025

By Kabir Sharma

MUMBAI – The weighted average call rate ended below the repo rate on Thursday for a second consecutive day due to improvement in overall liquidity conditions, dealers said. The weighted average rate was 6.21% on Thursday, down two basis points from Wednesday, and borrowing costs in the larger triparty repo market also declined similarly to 5.87%.

"There were no outflows today so rates were in control," a dealer at a state-owned bank said. "Excise duty outflows will drain around INR 500 billion (on Friday) so that should move the rates up a bit."

According to latest data from the Reserve Bank of India, the net liquidity injected by the central bank--a proxy for the systemic liquidity conditions--more than doubled to INR 544.77 billion on Wednesday, primarily due to payment for Tuesday's state governments' bond auction of INR 505.00 billion.

In order to address a likely tightening of liquidity conditions in the coming days due to excise tax, tax deducted at source, advance tax, and Goods and Services Tax payments, the RBI late Wednesday said it would buy gilts worth INR 1.00 trillion through open market auctions in March. In addition, it would conduct another dollar/rupee buy/sell swap auction of $10.00 billion for a tenor of 36 months on Mar. 24. Market participants, however, think these measures may only be enough to take care of the liquidity situation until the middle of the month and the RBI will need to do more in the second half of March.

"With RBI's new reaction function clearer, one also has greater confidence that should liquidity conditions not evolve as currently envisaged, further steps will be proactively forthcoming to ensure that rate cut(s) have an enabling underlying environment for transmission," Suyash Choudhary, head–fixed income, Bandhan Mutual Fund, said in a note Thursday.

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% and the triparty repo rate in 5.75-6.25%.

* The RBI will conduct a three-day and a 14-day variable rate repo auction for INR 250.00 billion and INR 500.00 billion, respectively.

CALL RATE

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

6.35%--Thursday's open for one-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Eases below repo; new liquidity moves seen enough till mid-Mar

MUMBAI – The interbank call rate and the weighted average rate were above the repo rate early Thursday as demand for funds from banks kept borrowing costs steady, with the former cooling to near the Standing Deposit Facility as the "early rush" eased. At 1100 IST, the call rate was at 6.05%, while the weighted average rate was at 6.28%. On Wednesday, the weighted average call rate was 6.23%. The net liquidity injected by the RBI on Wednesday rose to INR 544.77 billion primarily due to payment for Tuesday's state governments' bond auction of INR 505.00 billion.

Meanwhile, borrowing rates in the triparty repo market were well below the repo rate on Thursday as the liquidity position was quite comfortable for banks, dealers said. "TREPS will remain lower, especially with the new measures announced yesterday (Wednesday). It should take care of outflows till at least advance tax goes out of the system," a dealer at a private bank said. The weighted average triparty repo rate was at 5.89% at 1100 IST. A total of INR 44.42 billion was borrowed at Thursday's overnight variable rate repo auction for INR 250.00 billion, relfecting the comfortable liquidity conditions.

Late Wednesday, the RBI said it would buy gilts worth INR 1.00 trillion via open market auctions in March. In addition, it would conduct another dollar/rupee buy/sell swap auction of $10 billion for a tenor of 36 months on Mar. 24. Market participants, however, think these measures may only be enough to take care of the liquidity situation until the middle of the month and the central bank will need to do more in the second half of March.

"The measures announced yesterday (Wednesday) will take care of advance tax, which is expected to be around INR 2 trillion. But when GST (Goods and Services Tax) goes, we will need some more money," a dealer at another state-owned bank said. "A 14-day VRR, other than the usual one, would be really helpful."

According to Nomura strategists, the RBI's latest liquidity-boosting measures "suggests it wants the banking system in a surplus rather than a deficit".

"This raises the question of whether the MIBOR/WACR (weighted average call rate) can sustain below the repo rate. We believe we are moving in this direction and the market should start pricing the MIBOR to trade with a small premium (5 basis points) over repo rate before converging and/or falling below it after the RBI dividend in May," Nomura's Nathan Sribalasundaram said in a note on Thursday.  (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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