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Informist, Tuesday, Mar. 25, 2025

By Kabir Sharma and Vidhushi Rajpurohit

MUMBAI – Inflows from month-end repayments and moderation in banks' credit disbursals eased the systemic liquidity conditions which drove down money market rates on Tuesday, dealers said. The call rate for one-day loans ended at the Reserve Bank of India's standing deposit facility rate of 6.00%. The weighted rates at the call money markets remained elevated, but as usual the volumes in the market were shaply lower compared with the larger triparty repo market. 

The weighted average call rate was 6.30%, against 6.31% on Monday. Meanwhile, the weighted average rate in the triparty repo market--which includes mutual funds--eased 10 basis points to 6.21% from 6.31% Monday.

"The call market is a counterparty market, so it is based on negotiations, which is why the rates are high there. In that sense, triparty repo market gives a better sense of liquidity conditions," a dealer at a private bank said.

The Reserve Bank of India's net liquidity injected figure, a proxy for the liquidity deficit, fell to INR 1.93 trillion on Monday from Sunday's INR 2.61 trillion. Some dealers attributed the ease in the liquidity figure to inflows from RBI's dollar purchases on Thursday. The central bank likely intervened in the foreign exchange market with its dollar purchases as the Indian rupee neared a seven-week-high last week. Consequently, it led to the adding of rupee liquidity to the banking system.

Dealers expect liquidity conditions to ease and reach closer to near-neutral levels by March end on the back of month-end inflows and the RBI's continuous measures to inject funds into the banking system. Dealers have pegged the total quantum for the month-end inflows at INR 1.50 trillion to INR 2.00 trillion.

Earlier in the day, the RBI conducted an open market operation auction and bought six gilts amounting to INR 445.41 billion. The settlement of the auction is scheduled for Wednesday. The inflows from the OMO purchase auction will be offset by the payment for the state bond auction held on Tuesday where 21 states raised INR 722.55 billion. 

"State bonds will be used as SLR (statutory liquidity ratio) requirement and banks can use these bonds as securities to borrow in the TREPs (triparty repo) market, so in a way the payment for them is not seen as a draining of liquidity," a dealer at a private bank said. 

OUTLOOK

* On Wednesday, 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 750 billion from 1000-1030 IST. 

CALL RATE

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

6.50%--Tuesday's open for one-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo rate on demand for funds from banks in early trade

MUMBAI – Money market rates remained above the Reserve Bank of India's repo rate of 6.25% on Tuesday due to demand for funds from banks in early trade for cash reserve requirements, dealers said. At 1000 IST, the one-day call rate was at 6.40%, against 5.80% on Monday. The weighted average rate was at 6.45%, unchanged from Monday. The weighted average rate in the larger triparty repo market was 6.30%, up from 6.27% on Monday.

As per RBI data, the net liquidity injected by the central bank, a proxy for liquidity deficit, was INR 1.93 trillion on Monday, compared to INR 2.61 trillion on Sunday. The sharp fall of around INR 700 billion was surprising for the market as there were no scheduled inflows lined up for Monday, dealers said. While some market participants attributed the narrowing of liquidity deficit to inflows for the government's month-end spending, a few were not convinced. 

"There is still time for these inflows to start, I think they will start in a day or two but not later than that because of extended weekend," a dealer at a state-owned bank said. "Inflows from month-end spending will add at least INR 1.5 trillion into the banking system." 

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 on 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 during the day.

During the day, money market rates may see some pressure due to year-end credit disbursements, which would prompt banks to participate in the overnight variable rate repo operation aggressively, dealers said. Money market participants expect the overnight variable rate repo auction for a notified amount of INR 1.25 trillion to see around 60% participation, dealers said.  End

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

Edited by Akul Nishant Akhoury

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