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Informist, Friday, Mar. 21, 2025

By Kabir Sharma

MUMBAI – The weighted average call rate remained above the repo rate on Friday as banks were in need of funds to meet year-end credit demand, dealers said. Outflows on account of Goods and Services Tax payments also kept borrowing costs elevated on Friday, with the weighted average call rate closing at 6.33% from 6.36% Thursday, dealers said. The three-day interbank call money rate eased towards the end of trade and closed at 5.80%, against 5.85% for one-day loans on Thursday.    

"GST will take close to INR 1.75 trillion out of the system so demand is definitely there. Year-end is approaching and we will see liquidity conditions getting worse before they get better," a dealer at a state-owned bank said. As per RBI data, the net liquidity injected by the central bank was INR 2.32 trillion compared to INR 2.29 trillion Wednesday.

Rates in the larger triparty repo market, which includes mutual funds, shot up to 6.30% from 6.16% on Thursday as there was heavy demand for funds in the first half of the day, dealers said. According to dealers, the weighted average borrowing costs in the triparty repo market were lower than in the call market due to funds being available with mutual funds, which are the major lenders in the market.

Instead of the standard 14-day auction on the reporting Friday, the RBI announced a five-day variable rate repo auction for INR 500.00 billion which saw good demand with the central bank accepting bids for INR 462.04 billion. Traders suggested that the RBI's decision to call off the 14-day auction may stem from its anticipation that month-end spending inflows will enable banks to fulfil their funding requirements. Some dealers said the central bank may have preferred not to prolong the variable rate operation into the upcoming financial year starting Apr. 1 and, therefore, adjusted the tenure. The overnight variable rate repo auction held by the RBI for INR 1.50 trillion saw more than 60% subscription.

OUTLOOK

* On Monday, the one-day call rate may open above the repo rate and stay elevated as banks will borrow to cover 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 an overnight variable rate repo auction for INR 1.50 trillion at 1000-1030 IST Monday. 

CALL RATE

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

6.45%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Near MSF rate as banks cover for weekend, tax outflow

MUMBAI – Tax outflows and requirement of funds from banks to meet their weekend funding needs pushed up overnight borrowing costs in the money market towards the Reserve Bank of India's Marginal Standing Facility rate, dealers said. Money market rates were high also due to higher borrowing needs as the current reporting fortnight ends Friday. At 0915 IST, the three-day call rate was at 6.45%, near the RBI's marginal standing facility rate of 6.50%. The weighted average rate was also at the same level.  

The liquidity position of the banking system on Thursday was largely at the same level as that on Wednesday. As per RBI data, the net liquidity injected by the central bank was INR 2.32 trillion compared to INR 2.29 trillion Wednesday. Dealers said that some outflows for Goods and Services Tax payment were managed with the the transient liquidity of INR 1.24 trillion provided by the RBI through overnight variable rate repo auction.

Traders expect the last tranche of the GST outflow on Friday to be on slightly heavier than Thursday's outflow. The total tax outflow over two days, which started Thursday, is estimated at around INR 1.50 trillion to INR 1.75 trillion, dealers said. 

In view of the presisting tight liquidity, after market hours Thursday, RBI announced two variable rate repo auctions for Friday. At the three-day auction for INR 1.50 trillion, dealers expect banks to bid aggressively and borrow the entire notified sum to owing to the upcoming weekend and to manage the tax outflows.

Moreover, in place of the usual 14-day auction on the reporting Friday, the RBI has announced a five-day variable rate repo auction for INR 500.00 billion. Traders said the RBI's decision to cancel the 14-day auction might be because it expects inflows from month-end spending to be adequate enough for banks to meet their funding needs. Some dealers were also of the view that the central bank does not want to extend the auction to the next financial year which starts on Apr. 1 and, hence, modified the tenure. 

"We are still unsure about the reason for five-day auction but maybe it (RBI) expects the liquidity to turn to surplus after month-end inflows or it is planning to come up with some different operations," a dealer at a private bank said. 

Following are the other highlights:

* Reversal of Thursday's overnight variable rate repo auction will drain INR 1.24 trillion 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%. (Vidhushi RajPurohit)

End

Edited by Saji George Titus

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