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Informist, Thursday, Mar. 13, 2025

By Kabir Sharma

MUMBAI – The weighted average call rate surged to 6.36% on Thursday from 6.27% Wednesday as banks borrowed to meet outflows and reserve requirements ahead of the long weekend, dealers said. "Advance tax outflows started today and we have to maintain cash reserves as well. So there was demand, especially in the first half," a dealer with a state-owned bank said. Money markets are shut on Friday for Holi.

Borrowing costs also rose in the larger triparty repo market, with the weighted average rate rising 8 basis points from Wednesday to 6.21% on Thursday.

Advance tax payments of around INR 2.50 trillion will flow out of banking system in the coming days, tightening the liquidity further. In view of this, the Reserve Bank of India has announced several measures to alleviate pressure on the liquidity. On Thursday, the central bank said two variable rate repo auctions for a total of INR 2.00 trillion will be held on Monday.

The four-day variable rate repo auction held on Thursday for INR 500.00 billion was fully subscribed, but the eight-day operation for INR 1.00 trillion saw bids worth INR 98.60 billion. Dealers said borrowers preferred accessing the money market rather than the RBI's eight-day window as they would have to pay higher rates for four more days when borrowing through the latter. "The TREPS rates will come down on Monday or maximum by Tuesday, so why will I park my funds for eight days at 6.26%?" a dealer at a private bank questioned.

Participation at the eight-day variable rate repo was also weak as the operation reverses on Mar. 21, a reporting Friday, by when fund requirements would likely be covered by the four-day repo and inflows from RBI's open market gilt purchases. The RBI bought central government bonds worth INR 500.00 billion on Wednesday and is scheduled to buy a similar sum through auction on Tuesday.

The RBI is on track to infuse more than INR 7.50 trillion of durable liquidity by the end of March through a variety of instruments, ranging from December's Cash Reserve Ratio cut, open market purchases of bonds through auctions and the secondary market, long-term variable rate repos, and dollar/rupee buy/sell swaps. "With this level of liquidity injection, core and system liquidity are expected to end the fiscal firmly in positive territory and that will spillover into April as well as year end government spending offsets likely rise in cash leakage during the harvest season," ICICI Securities Primary Dealership said in a note Thursday.

OUTLOOK

* On Saturday, volumes are likely to be low and the two-day call rate may open below the repo rate.

* During the day, the call and triparty repo rates are seen in the range of 5.75-6.25%.

CALL RATE

5.87%--Thursday's close for four-day loans

6.40%--Thursday's open for four-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Weighted avg rate up; banks cover for long weekend, tax outflow

MUMBAI – The weighted average call rate shot up to 6.40% on Thursday, sharply above the repo rate of 6.25% as banks rushed to cover reserve needs ahead of the long weekend which will also feature advance tax outflows, dealers said. The weighted average rate in the larger triparty repo market—which includes mutual funds—also rose to 6.24% from 6.18% around the same time on Wednesday. The four-day interbank call money rate was also at 6.40%, up from 6.25% on Wednesday. Money markets are shut on Friday on account of Holi. 

"Four days worth of outflows have to be accounted for so that's why there's this early rush, rates will cool off after inflows from OMOs (open market operations) hit," a dealer at a state-owned bank said. The Reserve Bank of India purchased INR 500.00 billion of government bonds at the open market auction on Wednesday, inflows from which are expected to improve banking system liquidity on Thursday. The central bank also announced that it will buy six government bonds worth INR 500 billion through an open market operation auction Tuesday.

According to data from the RBI, the net liquidity injected by the central bank--a proxy for systemic liquidity conditions--increased to INR 1.38 trillion on Wednesday from INR 1.05 trillion on Tuesday. Outflows on account for payment of advance tax are expected to drain around INR 2.50 trillion from the banking system starting Thursday.

Dealers expect the INR 500.00 billion four-day variable rate repo auction at 1000-1030 IST to see subdued demand as rates are expected to cool off during the day. The RBI will also hold an eight day VRR auction for INR 1.00 trillion from 1100-1130 IST, which is also expected to be subscribed 50%. "The maturity for the eight-day is on a reporting Friday so we are not seeing much demand, flows from the second OMO will also hit the system by then," a dealer at a private bank said.  

Following are the other highlights:

* Reversal of Wednesday's overnight variable rate repo auction will drain INR 181.86 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%.

End

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

Edited by Ashish Shirke

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