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Informist, Wednesday, Mar. 26, 2025

By Vidhushi RajPurohit

MUMBAI – Weighted average rates in the Indian money market fell significantly on account of improved liquidity conditions in the banking system, dealers said. Rates were also low as pressure on banks to meet large tax outflows was also alleviated after the payment of Goods and Services tax ended last week. Reserve Bank of India's measures to infuse durable liquidity into the banking system also led to a reduction in demand for funds. 

The call rate for one-day loans ended below the standing deposit facility rate of 6.00%, at 5.85%. The weighted rates at the call money market declined more than 10 basis point to end at 6.20%. The weighted average rate in the triparty repo market--which includes mutual funds—also logged a similar fall to 6.10% from 6.21% Tuesday.

The net liquidity injected by the central bank--a proxy for liquidity conditions--further declined to INR 1.57 trillion on Tuesday from Monday's INR 1.93 trillion, RBI data showed. The figure suggests a narrowing of the deficit in the banking system. The improvement in the liquidity conditions was owing to inflows from the month-end expenditure of the government which is expected to have added around INR 700 billion to the banking system, dealers said.

"The inflows from salary and pension payments started early this time as it is the year-end period and banks need to close their books. In the upcoming days we can see further narrowing of the deficit figure once the scheduled inflows are done," a dealer at a state-owned bank said. 

The total inflows are estimated at INR 1.50 trillion to INR 1.70 trillion, which is expected to be fully reflected in the systemic liquidity figure by month-end, they said. In addition to the month-end inflows, the central bank's intervention on the buy side in the foreign exchange market last week as the rupee neared a 10-week-high on Friday, also aided rupee liquidity, dealers said.

The improvement in liquidity conditions was also reflected in the overnight Mumbai Interbank Offer Rate which fell by 10 bps to 6.31% on Wednesday. Dealers expect the liquidity conditions to improve further on the back of inflows from the settlement of the $10.04 billion dollar/rupee buy/sell swap auction conducted on Monday, dealers said. The auction is estimated to have infused around INR 900 billion into the banking system on Wednesday.  

Moreover, the funding needs of banks are met by the daily variable rate repo auctions by the RBI. On Wednesday, banks borrowed INR 354.86 billion at the overnight auction against the notified quantum of INR 750 billion. The central bank set the cut-off rate at 6.26%. 

OUTLOOK

* On Thursday, 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 5.80-6.40% and the triparty repo rate in the range of 5.75-6.30%.

* The RBI will conduct an overnight variable rate repo auction for INR 750 billion from 1000-1030 IST. 

CALL RATE

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

6.30%--Wednesday's open for one-day loans

6.00%--Tuesday'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 in early trade

MUMBAI – Borrowing costs in the Indian money markets were above the repo rate on banks' demand for funds early in the day to meet their reserve requirements, dealers said. Easier liquidity conditions than earlier this week and upcoming inflows from month-end expenditure of the government are expected to drive down money market rates later in the day.

At 0945 IST, the one-day call rate was at 6.15% as against 6.00% at close on Tuesday. The weighted average call rate was at 6.30%, unchanged from Tuesday. Meanwhile, the weighted average rate in the larger triparty repo market was 6.18%, down from 6.21%.

"The (money market) rates have started to reflect the ease in liquidity conditions, especially in the TREPs (triparty repo) market. Now that tax outflows are over and inflows from month-end spending will add further funds, liquidity might reach near neutral by March end," a dealer at a private bank said.

As per Reserve Bank of India data, the net liquidity injected by the central bank--a proxy for liquidity conditions--further declined to INR 1.57 trillion on Tuesday from Monday's INR 1.93 trillion, suggesting some narrowing of the deficit in the banking system. In addition to the RBI's huge durable liquidity infusions, dealers said the easing of liquidity was also likely due to the central bank intervening on the buy side in the foreign exchange market last week as the rupee neared a 10-week-high on Friday.

Some respite is also seen from the government's month-end expenditure, with dealers estimating that inflows for salary and pension payments have already added around INR 500 billion to INR 700 billion to the banking system since Monday. The total month-end inflows are pegged at INR 1.50 trillion to INR 1.75 trillion, dealers said.

With borrowing costs expected to climb down over the course of the day, dealers see the RBI's overnight variable rate repo auction on Wednesday being undersubscribed. Traders expect banks to borrow around INR 350 billion at the auction, almost half the notified amount of INR 750 billion.  End

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

Edited by Deepshikha Bhardwaj

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