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Informist, Thursday, Mar. 27, 2025

By Siddhi Chauhan

MUMBAI – Weighted average call rate ended below the Reserve Bank of India's repo rate of 6.25% on Thursday as liquidity conditions in the banking system improved, dealers said. The call rate for one-day loans ended at 6.35%, against 5.85% on Wednesday. The weighted average rate in the call money market ended at 6.16%, slightly down from 6.20%. The weighted average rate in the triparty repo market, which includes mutual funds, ended at 6.14%, up from 6.10% on Wednesday. 

Market participants had expected the rates to fall further during the day, dealers said. However, the fall in rates was limited due to year-end credit offtake, dealers said. "We were expecting the weighted average TREPS to fall below SDF given the sharp fall in deficit, but it seems that there was an urgent disbursement requirement which would have prevented the fall," a dealer at a state-owned bank said. "Redemption pressures from mutual funds would have also added to the pressure."

As per Reserve Bank of India data, the net liquidity injected by the central bank--a proxy for liquidity conditions--declined further to INR 407.88 billion on Wednesday, the lowest level since Mar. 4, from INR 1.57 trillion on Tuesday. The sharp fall in the deficit was due to inflows of around INR 1.3 trillion, which includes INR 407.88 billion from the settlement of RBI's gilt purchase through open market operation auction and $10.04 billion dollar/rupee buy/sell swap auction. The dollar/rupee buy/sell swap was conducted on Monday, while the OMO purchase auction was held on Tuesday.

The comfortable liquidity conditions were evident as the overnight Mumbai Interbank Offered Rate was set below the repo rate on Thursday for the first time since Nov. 13, even towards the end of the financial year. The MIBOR was set at 6.24%, down from 6.31% on Wednesday.

The easy accessibility of funds at cheaper rates also resulted in little participation from market participants at the overnight variable rate operation. At the overnight variable rate repo auction, banks borrowed just INR 213.92 billion against the notified amount INR 750.00 billion. The central bank set the cut-off rate at 6.26%.

Market participants expect liquidity in the banking system to turn into a meagre surplus on Friday on account of the remaining inflows from government's month-end spending, dealers said. According to market participants, inflows of around INR 800 billion to INR 1 trillion have already been added into the banking system till Wednesday, dealers said. Around INR 600 billion is yet to come into the system in the coming days, dealers said.

OUTLOOK

* On Friday, the five-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 a five-day variable rate repo auction for INR 500.00 billion from 1000-1030 IST.

CALL RATE

6.35%--Thursday's close for one-day loans

6.25%--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: At repo rate as liquidity gap narrows; money mkt rates seen down
 

MUMBAI – The interbank call money rate Thursday opened at the Reserve Bank of India's repo rate of 6.25% as liquidity deficit in the banking system narrowed, dealers said. At 1114 IST, the one-day call rate was at 6.25% against 5.85% at close on Wednesday. The weighted average call rate was at 6.23%, down from 6.30% at the same time on Wednesday. The weighted average rate in the larger triparty repo market was 6.07%, down from 6.18%.

Money market rates eased due to a sharp fall in the liquidity deficit, dealers said. As per data by the Reserve Bank of India, the net liquidity injected by the central bank--a proxy for liquidity conditions--declined further to INR 407.88 billion Wednesday, the lowest level since Mar. 4, from INR 1.57 trillion Tuesday. The fall in net liquidity injected was attributed to inflows from the settlement of the $10.04 billion dollar/rupee buy/sell swap auction conducted Monday. The settlement of the swap that took place Wednesday would have added INR 900 billion into the banking system, dealers said.

Apart from this, payment from RBI's gilt purchases on Wednesday from the open market operation auction held Tuesday, led to inflows of INR 445.41 billion. The easy availability of liquidity was also apparent as banks increased funds parked under the standing deposit facility to INR 1.89 trillion Wednesday from INR 1.77 trillion on Tuesday, dealers said.

Liquidity conditions are expected to ease going forward with inflows from government's monthly spending expected to add at least INR 1.5 trillion into the banking system. "I think that by Saturday, we will see a surplus, this will reduce banks' reliance (on) VRRs for some time now," a dealer at a state-owned bank said. "Even today (Thursday), I feel that participation at VRR will be quite low," (Siddhi Chauhan)

End

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

Edited by Ashish Shirke

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