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Informist, Monday, Mar. 24, 2025

By Kabir Sharma

MUMBAI – The weighted average cost of borrowing in the money market was above the repo rate on Monday due to tight liquidity conditions, dealers said. Whil the call rate for one-day loans ended at 5.80% as demand for funds waned at the end of trade, the weighted average call rate was 6.31%, only slightly lower than 6.33% on Friday. Meanwhile, the weighted average rate in the larger triparty repo market--which includes mutual funds--inched up to 6.31% from 6.30% Friday.

"Demand (for funds) was there, but people were expecting rates to come down after VRR (variable rate repo) auction. That's why it was not (fully) subscribed. But rates did not fall as much as we were expecting," a dealer at a state-owned bank said. The daily variable rate repo auction for INR 1.50 trillion saw the RBI take all bids for INR 662.15 billion.

The tightness in liquidity conditions was reflected in the net injections number by the RBI for Sunday, which was little changed from Saturday's INR 2.61 trillion, the highest since Jan. 27. On Friday, the figure was INR 2.06 trillion.

Going forward, liquidity conditions are expected to ease somewhat following the settlement of the first leg of the RBI's $10-billion dollar/rupee buy/sell swap auction, held Monday. The first leg of the settlement will take place on Wednesday, after which inflows from the government's month-end spending will also help in bridging the liquidity shortfall, with the central bank also set to purchase INR 500.00 billion of gilts through an open market auction on Tuesday.

"We expect system liquidity to turn surplus from mid-week onwards as these inflows materialise," economists from Kotak Mahindra Bank said in a note Monday, although they added that a temporary build-up in the cash reserve ratio product at the end of the financial year could "briefly" offset the surplus. "We expect overnight rates to remain in check amid RBI's continued liquidity easing measures, with brief bouts of year-end spikes. Overall, we expect both system and durable liquidity to be in surplus in the coming months," they added.

As per latest RBI data, the net durable liquidity surplus had increased to INR 543.23 billion as on Mar. 7, the highest since Dec. 13.

OUTLOOK

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

* 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 1.25 trillion from 1000-1030 IST. 

CALL RATE

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

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Near MSF after tax outflows; net liquidity injected slightly down

MUMBAI – Money market rates were near the Reserve Bank of India's marginal standing facility rate of 6.50% after goods and services tax outflows, which took place on Friday, dealers said. "A spillover of GST outflows will be seen on money market rates today as well (Monday)," a dealer at a private bank said. "If market participants borrow heavily from overnight variable rate repo auction then we might a see a cool-off in the second half of trade."

At 1000 IST, the one-day call rate was at 6.45% against 5.80% for three day loans on Friday. The weighted average rate was 6.41% slightly down from 6.45% at the same time on Friday. The weighted average rate in the larger triparty repo market was 6.25%, also down from 6.26% on Friday.

As per RBI data, the net liquidity injected by the central bank, a proxy for liquidity deficit, was INR 2.06 trillion on Friday, compared to INR 2.32 trillion Thursday. The fall in net liquidity injected was surprising for market participants as liquidity deficit was expected to widen after the outflows for goods and servcies tax, dealers said. "It is difficult to tell right now what could have led to the fall in deficit, I think it would be better to wait for the next data to understand the total amount of outflows," a dealer at another state-owned bank said. The outflows for goods and services tax would have likely drained around INR 1.50 trillion to INR 2.00 trillion, dealers said. 

Going forward, liquidity conditions are expected to see some relief as the RBI will inject $10 billion through dollar/ruppee buy/sell swap auction which will be held at 1030-1130 IST. The settlement of the same will take place on Wednesday. Inflows for government month-end spending which will likely start during this week is expected add around INR 1.00 trillion to INR 1.50 trillion into the banking system, dealers said. (Siddhi Chauhan) 

End

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

Edited by Avishek Dutta

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