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Informist, Monday, Mar. 17, 2025

By Vidhushi RajPurohit

MUMBAI – Infusion of transient liquidity through two variable rate repo auctions significantly reduced the borrowing needs of banks towards close of the session on Monday, dealers said. Hence, despite the tightening of systemic liquidity after advance tax outflows last week, the interbank borrowing rates softened, closing at the Reserve Bank of India's standing deposit facility rate of 6.00%. 

"Advance tax payments were the major outflows that banks were mostly concerned with as it is year-end period which usually means higher outflows as well. With that out of the way and RBI's continued support for liquidity, the impact on money market rates was not that significant," a dealer at a private bank said.

The weighted average rates had inched up owing to the requirement for funds in the first half of the day as banks had to meet the last tranche of outflows for advance tax payment, which began on Thursday, dealers said. The weighted average rate for call money market ended at 6.34%, against 6.36% on Thursday. The triparty party weighted average rate settled at 6.19%, against 6.21% on Thursday. The one-day call money rate ended at 6.00% against 5.80% for two-day loans on Saturday.

Dealers pegged the total quantum of advance tax payment at INR 2.0 trillion to INR 2.5 trillion. The tax outflows led the net liquidity injected by the RBI to touch INR 2.22 trillion on Friday, the highest since Feb. 23.

Given the scale of outflows, the RBI held two variable rate repo auctions on Monday, each for a notified amount of INR 1 trillion. At the first overnight auction, market players borrowed the entire notified quantum. However, the four-day auction received tepid participation from borrowers. The central bank got bids worth INR 237.65 billion at the auction.

Dealers reasoned that around the time of the four-day auction, most banks had met their funding needs through the triparty repo market, the turnover of which surged to INR 1 trillion at around 1100 IST.

In addition to providing transient liquidity through variable rate repo auctions, the RBI had earlier announced measures to infuse durable liquidity into the banking system. On Tuesday, RBI will buy six gilts worth INR 500 billion through an open market operation. The central bank had conducted an OMO auction of similar quantum last week as well. Since January, it has conducted open market operation auctions to purchase government bonds amounting to INR 1.5 trillion.

OUTLOOK

* On Tuesday, the one-day call rate may open above the repo rate as banks will borrow funds to meet their reserve requirements.

* During the day, the call rate is seen in the range of 5.80-6.50% and the triparty repo rate is seen in the range of 5.75-6.40%.

* The RBI will conduct an overnight variable rate repo auction for INR 1.50 trillion at 1000-1030 IST.

CALL RATE

6.00%--Monday's close for one-day loans

6.45%--Monday's open for one-day loans

5.80%--Saturday's close for two-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo; high money mkt rates drive overnight VRR demand

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.25% on Monday as the systemic liquidity deficit widened owing to advance tax outflows of around INR 2.5 trillion, dealers said. At 1015 IST, the interbank call money rate for one-day loans was at 6.30%, against Saturday's close of 5.80% for two-day loans. The weighted average call rate was 6.41%, while the weighted average rate in the larger triparty repo market was also above the repo rate at 6.28%.

According to data from the RBI, the net liquidity injected by the central bank--a proxy for systemic liquidity conditions--increased to INR 1.55 trillion on Thursday from 1.38 trillion on Wednesday. This number is likely to have increased over the long weekend, although the RBI has been taking measures to counteract the impact of the tax payments, with the central bank purchasing INR 500.00 billion of government bonds through open market operations on Wednesday, with the transaction being settled on Thursday.

"The actual amount of outflows (for advance tax payments) will be visible from Saturday's data as Friday was holiday. So, a larger portion of outflows would have taken place on Saturday. RBI is aware that these outflow will have a significant impact. This is why they are going to add INR 2 trillion via two VRRs today (Monday)," a dealer at a state-owned bank said.

The central bank will conduct an overnight and a four-day variable rate repo auction for INR 1.00 trillion each on Monday. While market participants see good demand at the former, the four-day auction may see 50% or more participation, dealers said. During the day, the call rate is seen in a range of 5.85-6.50% and the triparty repo rate at 5.80-6.30%. (Siddhi Chauhan)  End

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

Edited by Ashish Shirke

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