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Informist, Friday, Mar. 28, 2025

By Kabir Sharma

MUMBAI – The weighted average call rate surged a whopping 87 basis points above the repo rate on Friday to end at 7.12% on the back of year-end demand for funds from banks, dealers said. "This is what happens every year during this time and this year even Monday is closed. Banks are shoring up balance sheets so that they don't have a problem on Apr. 1," a dealer at a state owned bank said. The weighted average rate was at 6.16% on Thursday. 

The interbank call money rate for five-day loans, which opened at a one-year high of 7.20% on Friday, ended the day at 7.00%. 

Money markets are shut on Monday for Id-ul-Fitr and on Tuesday for banks' annual closing of accounts. Rates shot up despite an improvement in the banking system liquidity conditions, dealers said. According to RBI data, banks parked INR 2.02 trillion at the RBI's Standing Deposit Facility on Thursday, while the liquidity deficit shrank as the government's month-end spending likely added at least INR 1.50 trillion into the banking system since Tuesday, dealers said. Net liquidity injected by the central bank, a proxy for the liquidity deficit, dropped to a mere INR 130.30 billion from INR 1.57 trillion on Tuesday. 

The sharp increase in demand for funds on Friday was also visible in the larger triparty repo market, which includes mutual funds. The weighted average triparty repo rate shot up to 6.69% on Friday from 6.14% on Thursday. "TREPS was haywire today as call rates were already going high. The cash from VRR is good but long term there will still be issues so despite good subscription at VRRs rates were on the higher side," a dealer at a private bank said. 

At the first variable repo rate auction, the RBI received bids worth INR 853.80 billion against a notified amount of INR 500 billion, which took the cut-off to 6.37%. Seeing the overwhelming response, the central bank announced a second variable rate repo operation for INR 1.00 trillion, but this time the demand was only for INR 384.23 billion. 

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 5.80-6.40% and the triparty repo rate in the range of 5.75-6.30%.

CALL RATE

7.00%--Friday's close for five-day loans

7.20%--Friday's open for five-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Shoots past 7% on heavy year-end demand for funds

MUMBAI – The interbank call money rate opened at 7.20% on Friday--the highest in exactly a year—amid heavy demand for funds from banks before the end of the financial year, dealers said. At 1035 IST, the five-day call rate was still trading at 7.20% as against Thursday's close of 6.35% for one-day loans. The weighted average call rate was also at 7.20%, almost a full percentage point higher than 6.26% at the same time on Thursday. The weighted average rate in the larger triparty repo market was also sharply higher at 6.86%.

Money markets are shut on Monday for Id-ul-Fitr and on Tuesday for banks' annual closing of accounts.

"Generally, towards financial year closing, overnight rates shoot up as banks try to meet asset-liability mismatches on their balance sheets. This is not just money markets, rates have shot up in forex (foreign exchange) market too," a dealer at a state-owned bank said. "There is a possibility of rates rising even further during the day, which could drive demand at the variable rate repo operation."

The Reserve Bank of India held a five-day variable rate repo auction for INR 500 billion from 1000 IST to 1030 IST. Some market participants expect the central bank to announce another auction to meet the increased demand for funds. However, a few think money market rates will cool off after the five-day operation, which would allow them to borrow at cheaper rates from the triparty repo market.

"I doubt that there will be a second VRR auction because the liquidity conditions have eased sharply. Banks have parked a huge sum under SDF (Standing Deposit Facility). I think they (banks) have parked excess fund under SDF keeping year-end needs in their minds," a dealer at a private bank said. "I believe that after the first auction, rates will cool off. I think there is a good trade opportunity as well: even if I borrow at 6.29% in VRR, I will gain a good spread since the TREPS rate is currently at 6.83%."

According to RBI data, on Thursday, banks parked INR 2.02 trillion at the Standing Deposit Facility, with the central bank injecting a mere INR 130.30 billion of liquidity as the government's month-end spending likely added at least INR 1.50 trillion into the banking system since Tuesday, dealers said. However, the fall in the liquidity deficit was limited due to Wednesday's payment for state government securities auctioned on Tuesday.  (Siddhi Chauhan)  End

Edited by Akul Nishant Akhoury

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