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Informist, Thursday, Mar. 20, 2025

By Vidhushi RajPurohit

MUMBAI – Demand for funds from banks to meet year-end credit disbursal targets and outflows on account of Goods and Services Tax payments kept borrowing costs elevated on Thursday, with the weighted average call rate largely unchanged at 6.36% from 6.37% Wednesday, dealers said. Also exerting upward pressure on rates was the continued liquidity deficit. The infusion of transient liquidity through the overnight variable rate repo auction eased some pressure, helping the one-day call rate end at 5.85%, the same as Wednesday.

Meanwhile, the weighted average rate in the larger triparty repo market, which includes mutual funds, ended at 6.16%, down 4 basis points from Wednesday. According to dealers, the weighted average borrowing costs in the triparty repo market were lower than in the call market due to adequate funds being available with mutual funds, which are the major lenders in the market.

"Mutual funds are in the money as they do not have any redemption pressure right now. So they are actively lending money in the TREPs market while keeping a margin for upcoming redemption needs," a dealer at a private bank said. "The volumes in TREPs are high because banks were in need of funds as there is still a high deficit and rates were lower there due to active lenders."

As per the latest data from the Reserve Bank of India, the net liquidity injected by the central bank on Wednesday was INR 2.29 trillion, broadly similar to the INR 2.26 trillion infused on Tuesday. At Thursday's overnight variable rate repo auction for INR 1.50 trillion, market players borrowed INR 1.24 trillion.

Dealers expect the impact of outflows on account of GST payments, estimated to be at least INR 1.50 trillion, to begin reflecting in the liquidity infusion data for Thursday that will be released on Friday.

OUTLOOK

* On Friday, the three-day call rate may open above the repo rate and stay elevated as banks will borrow to cover reserve requirements and outflows for GST payments.

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

* The RBI will conduct a three-day variable rate repo auction for INR 1.50 trillion as well as a five-day repo operation for INR 500.00 billion.

* The RBI said after market hours on Thursday that it had decided to not conduct the usual 14-day variable rate repo auction on Friday "on a review of current and evolving liquidity conditions".

CALL RATE

5.85%--Thursday's close for one-day loans

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

5.85%--Wednesday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call:Weighted avg rate above repo, yr-end loan disbursals boost demand

MUMBAI – Borrowing costs in the interbank call money market were above the Reserve Bank of India's repo rate of 6.25% on Thursday due to demand for funds from banks to meet their year-end credit disbursals, dealers said. At 1030 IST, while the one-day call rate had cooled to 6.30% from 6.50% earlier in the day, the weighted average rate was at 6.45%, up from 6.37% on Wednesday. The weighted average rate in the larger triparty repo market was at 6.27%, also up from 6.20% on Wednesday. High borrowing costs in the first half is expected to boost participation at the day's variable rate repo auction for INR 1.50 trillion, dealers said.

While liquidity needs were seemingly similar on Wednesday compared to Tuesday--as per RBI data, the net liquidity injected by the central bank was INR 2.29 trillion compared to INR 2.26 trillion Tuesday--the funds parked at the Standing Deposit Facility more than doubled to INR 1.45 trillion from INR 672.44 billion on Tuesday.

"The banks who would have maintained the required amount of cash balance would have opted to park their excess funds under SDF," a dealer at a state-owned bank said. "They might have borrowed this fund later in the day when the TREPS rate would have cooled off, falling below SDF rate."

In its monthly State of the Economy article, published on Wednesday, the RBI said the "co-existence of deficit liquidity conditions and substantial fund placements under the SDF (Standing Deposit Facility) suggests the asymmetric distribution of liquidity within the banking system as well as increased liquidity preference on the part of banks". As per the article, banks parked INR 1.15 trillion on average at the Standing Deposit Facility between Feb. 16 and Mar. 13, up from INR 0.85 trillion the preceding month.

Market participants expect the RBI to inject more temporary liquidity once outflows for Goods and Services Tax begin, estimated to be at least INR 1.50 trillion, according to dealers.  End

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

Edited by Saji George Titus

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