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Informist, Tuesday, Mar. 11, 2025

By Siddhi Chauhan

MUMBAI – Weighted average call rate remained above Reserve Bank of India's repo rate of 6.25% even as liquidity conditions were unchanged due to demand for funds from primary dealerships, dealers said. The weighted average call rate was at 6.30%, up from 6.26% Monday. In the larger triparty repo market, the weighted average rate ended at 6.13%, down from 6.18% the previous day. The one-day call money rate ended at 5.80% against 6.25% on Monday.

According to data from the Reserve Bank of India, the net liquidity injected by the central bank--a proxy for systemic liquidity conditions--was INR 1.45 trillion on Monday, same as on Sunday. Liquidity deficit remained unchanged as there were no significant inflows or outflows on Monday, dealers said.

However, funds parked by banks through standing deposit facility on Monday increased by INR 329.81 billion from Sunday's figure. As per data from RBI, banks parked INR 856.88 billion under the standing deposit facility on Monday.

Even with liquidity being unchanged and no significant outflows scheduled for the day, weighted average call rate witnessed upward pressure. While banks had met their demand from triparty repo rate as it was trading well below repo rate as primary dealers lacking collateral resorted to unsecured borrowing in the call market.

"Since TREPS market is collateralized, primary dealerships cannot borrow aggressively from there because we don't have that much securities. So to fulfil our demand, borrowing is carried out through call market, which has resulted in rates to rise," a dealer at a primary dealership said. "The demand is just usual though there is nothing out of ordinary." 

Apart from demand from primary dealerships, tepid participation at the overnight variable rate repo operation also pushed money market rates up, dealers said. At the overnight repo operation of INR 500 billion, the central bank got bids worth INR 157.91 billion which was fully accepted at 6.26%. "Everyone is refraining from participating at VRR these days because they can borrow at cheaper rate from triparty repo market. If they borrow from VRR, they have to borrow at minimum 6.26%," a dealer at a private bank said. 

Going forward, liquidity in the banking system is expected to be under strain due to outflows on account of corporate advance tax that will likely start from Wednesday, dealers said. These outflows are expected to drain INR 2 trillion to INR 2.5 trillion over a course of three days. "I think around over INR 1 trillion of outflows will take place on the first day itself because markets are shut on Friday and the outflows should be done by Mar. 15," a dealer at a state-owned bank said. Indian financial markets are shut Friday on account of Holi. "Since Saturday is also working, some chunk of outflows will also take place on that day; we will get a clearer picture on Monday."

However, inflows from the settlement of gilts purchased through open market operation on Wednesday may provide some respite, dealers said. The settlement of the auction will take place on Thursday.

OUTLOOK

* On Wednesday, 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

5.80%--Tuesday's close for one-day loans

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Weighted avg rate up as liquidity tight before tax outflows

MUMBAI – The weighted average call rate was above the repo rate on Tuesday as liquidity conditions in the banking system remained tight ahead of outflows for advance tax, dealers said. The weighted average rate was at 6.37% at 1000 IST on Tuesday, unchanged from around the same time on Monday. The interbank call rate also opened sharply above the repo rate at 6.40% against the previous close of 6.25%.

In the larger triparty repo market, which includes mutual funds, the weighted average rate was at 6.24% at 1000 IST, unchanged from Monday. "TREPS will ease as the day goes on once early demand fades out, but it can't go back to 5.75% levels that we saw last week, at least for this week because of the holiday," a dealer at a state-owned bank 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 1.45 trillion on Monday, largely unchanged from INR 1.46 trillion on Saturday. "Advance tax outflows will start tomorrow (Wednesday) which will be more than usual becuase of year-end so rates will stay a little high, specially in the first half," a dealer at a private bank said. "The outflows could be around INR 2 trillion so despite all the measure there will be a hit on liquidity."

Dealers estimate bids at the overnight variable rate repo operation at 1000-1030 IST to be around INR 275 billion, against the notified amount of INR 500 billion, as money market rates are expected to cool as the day goes on.

Following are the other highlights:

* Reversal of three-day variable rate repo tender will drain INR 294.89 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%. (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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