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Informist, Monday, Mar. 10, 2025

By Siddhi Chauhan

MUMBAI – Money market rates rose from Friday's close on Monday due to a sharp rise in the liquidity deficit and subdued participation in the overnight variable rate operation held during the day, dealers said. The weighted average call rate rose to 6.26% against 6.25% Friday. For the larger triparty repo market, the weighted average rate ended at 6.18%, up from 6.13% Friday. The one-day call money rate ended at 6.25% against 5.80% for three-day loans on previous day. 

"In the previous days we have seen minimal participation in VRR auctions. Banks are preferring to borrow funds through TREPs and call market instead of VRR. Because I am not borrowing from VRR, I will fulfil my demand from TREPS and call market resulting in an increase in rates," a dealer at a state-owned bank said. "The deficit has again risen above INR 1 trillion figure, this has also resulted in higher rates." 

As per the latest Reserve Bank of India data, while net liquidity injected by RBI on Sunday was unchanged from Saturday's figure, a sharp increase in deficit was seen with respect to Friday's data. Net liquidity injected by the central bank – a proxy for systemic liquidity conditions – was at INR 1.46 trillion on Sunday compared with 824.65 billion on Friday.

Market participants attributed the rise in deficit to an additional cash balance maintained by banks with RBI on Sunday. As per latest data, funds maintained by RBI rose to INR 9.56 trillion on Sunday against INR 9.57 trillion on Saturday. On Friday, the cash balance stood at INR 8.94 trillion. 

As per prudential norms, banks are required to maintain a cash reserve ratio with the central bank averaged across the fortnight. In the fortnight ending Mar. 21, banks are supposed to maintain an average cash balance of INR 9.19 trillion with the RBI.

Even with an increase in liquidity deficit, the demand at the overnight variable rate repo operation was muted as the weighted average triparty repo rate was trading well below the RBI's repo rate of 6.25%, dealers said. At the overnight repo operation of INR 750 billion, the central bank got bids worth INR 294.89 billion which was fully accepted at 6.26%. 

"Even if TREPS rate are just 1 to 2 basis points lower than repo rate banks would prefer borrowing from there because that would still save cost of borrowing for banks," a dealer at another state-owned bank said. "In the morning, the triparty repo rate fell to as low as 5.85% so a lot of banks had fulfilled their borrowing demand through triparty repo market." 

OUTLOOK

* On Tuesday, the one-day call rate may open above 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 500 billion at 1000-1030 IST.

CALL RATE

6.25%--Monday's close for one-day loans

6.30%--Monday's open for one-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call:Above RBI's repo rate; money market rates expected to remain high
 

MUMBAI – The interbank call rate was slightly above the Reserve Bank of India's repo rate of 6.25% due to demand for funds from banks in early trade for cash reserve requirememts. With an increase in net liquidity injected, money market rates are expected to remain elevated throughout the day, dealers said. According to data from the Reserve Bank of India, the net liquidity injected by the central bank – a proxy for systemic liquidity conditions – was at INR 824.65 billion on Friday, against INR 569.09 billion on Thursday.

At 0930 IST, the call rate for one-day loans was at 6.30%, against 5.80% at close for three-day loans on Friday. At the same time, the weighted average call rate was at 6.30%, against 6.31% on Friday. Meanwhile, the weighted average rate in the larger tri-party repo market – which includes mutual funds – rose to 6.18% on Monday from 5.97% on Friday. 

The liquidity deficit widened due to outflows for excise duty and tax deducted at source payments which totalled around INR 700 billion, dealers said. These outflows exerted pressure on money market rates, the impact of which was visible during the initial hour of trade on Monday. There were no significant outflows on this account scheduled Monday.

Even though the weighted average triparty repo rate rose from the previous day, it was still below the repo rate. This might reduce banks' interest in participating at the overnight variable rate repo operation, dealers said. The central bank will conduct an overnight variable rate repo operation for a notified amount INR 750 billion at 1000-1030 IST. The auction is expected to see around 70% participation. 

"Even though the deficit has increased, the TREPS are trading below the repo rate so I don't see a reason why one should borrow at 6.26%," a dealer at a state-owned bank said. "Also, we don't have any significant outflow for today (Monday), so I feel the auction will not see aggressive demand." 

Following are the other highlights:

* Scheduled net inflows of INR 119.38 billion largely on coupon and redemption of payment of government securities. 

* Reversal of three-day variable rate repo tender will drain INR 39.70 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 at 5.75-6.25%. (Siddhi Chauhan)

End

Edited by Deepshikha Bhardwaj

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