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Informist, Friday, Mar. 7, 2025

By Vidhushi RajPurohit

MUMBAI – Weighted average money market rates rose from Thursday's close owing to increased demand for funds from banks to manage tax outflows and to meet reserve requirements as the current reporting fortnight ended Friday, dealers said. The weighted average call rate was 6.26%, against 6.21% Thursday. For the larger triparty repo market, the weighted average rate ended at 6.13%, up from 5.87% Thursday.

According to latest data from the Reserve Bank of India, the net liquidity injected by the central bank--a proxy for systemic liquidity conditions--was INR 569.09 billion Thursday, against INR 544.77 billion Wednesday. Outflows for tax deducted at source and excise duty payments are expected to have drained around INR 500 billion from the banking system, dealers said.

Improved systemic liquidity and RBI's measures to provide banks with adequate funds led the money market rates to ease at the day's close despite tax outflows Friday, dealers said. RBI's two variable rate repo auctions Friday received tepid bids owing to expectations of further ease in liquidity conditions after the inflows from open market operation auction Wednesday.

Dealers also said that at the time of the auctions the rates in the triparty repo market were trading below repo rate, thus driving down participation at the auctions. At the three-day variable rate repo auction, traders borrowed INR 39.70 billion, against the notified amount of INR 250 billion. They borrowed INR 83.75 billion at the 14-day, INR 500-billion variable rate repo auction. The RBI set a cut-off rate of 6.26% at both the auctions.

The comfort of daily variable rate repo auctions by the RBI also led to meagre demand at the fortnightly auction, dealers said. To ease the systemic liquidity, the central bank had said on Jan. 15 that it would hold variable rate repo auctions on every working day until further notice.

"Banks know that they can borrow from the RBI regularly, as there is a daily VRR window there. So no one wants to borrow for 14 days and that too above repo rate when the money market rates are not that high," a dealer at a private bank said.

OUTLOOK

* Money markets are shut on Saturday. On Monday, 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 the range of 5.75-6.40% and the triparty repo rate in 5.75-6.25%.

* The RBI will conduct an overnight variable rate repo auction for INR 750 billion at 1000-1030 IST.

CALL RATE

5.80%--Friday's close for three-day loans

6.35%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo rate on need for funds for tax outflows

MUMBAI – The interbank call rate was above the repo rate early Friday owing to increased demand for funds from banks in the wake of outflows of tax deducted at source and excise duty payment, dealers said. The money market rates were also high due to higher borrowing needs as the current reporting fortnight ends Friday. At 0920 IST, the call rate was at 6.35% and the weighted average rate was also at the same level.  

"There are tax outflows and also it is usual on Friday for the (money market) rates to trade slightly higher as banks borrow for three days instead of overnight," a dealer at a state-owned bank said.

According to the latest data from the Reserve Bank of India, the net liquidity injected by the central bank--a proxy for systemic liquidity conditions—was at INR 569.09 billion Thursday, against INR 544.77 billion Wednesday. Dealers expect liquidity conditions to deteriorate slightly in the coming week owing to the tax outflows which are expected to drain around INR 500 billion from the banking system. 

However, the RBI's first tranche of OMO auction Wednesday is expected to provide some respite to the systemic liquidity as the central banks aims to purchase government bonds amounting to INR 500 billion. The settlement of the auction is scheduled for Thursday.

During the day, dealers expect money market rates to ease as the RBI is scheduled to provide transient liquidity aggregating to INR 750 billion from two variable rate repo auctions. The three-day auction for INR 250 billion is expected to be subscribed by around 75%, dealers said. For the INR-500-billion 14-day auction, dealers expect banks to bid for the full notified amount as they will likely rollover the INR 410.46 billion borrowed at the previous 14-day auction which is due for reversal Friday.

Following are the other highlights:

* Reversal of 14-day variable rate repo tender will drain INR 410.46 billion from the banking system.

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

End

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

Edited by Ashish Shirke

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