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Informist, Wednesday, Apr. 2, 2025

By Kabir Sharma

MUMBAI – Borrowing costs in the call market were lower on Wednesday as liquidity conditions in the banking system improved significantly, dealers said, with the weighted average rate at 6.19%, sharply lower than 7.12% on Friday. The weighted average rate in the larger triparty repo market, meanwhile, fell below the Standing Deposit Facility rate to 5.75%.

"Despite the outflows today, banks are comfortable. Some smaller banks borrowed a good chunk in the first half of the day which might have pushed rates up, but overall the larger banks are quite comfortable," a dealer at a state-owned bank said. "TREPS is clearly indicating how good the situation is. Let's see if it stays this way till next week." Dealers said mutual funds were actively lending in the triparty repo market as they had excess funds due to year-end inflows.

The improved liquidity conditions were also reflected in low demand at the variable rate repo auction conducted by the RBI earlier in the day, which saw bids worth INR 91.70 billion, as against the notified amount of INR 250.00 billion. 

Banking system liquidity has improved significantly in recent days, thanks to various measures taken by the Reserve Bank of India, which absorbed INR 1.42 trillion on Tuesday--the most it has done in more than four and a half months. However, with the three long-term variable rate repos conducted in February--for a total of INR 1.83 trillion--set to reverse in the next few days, conditions could tighten somewhat. The RBI, though, is set to continue pumping liquidity for the rest of the month, having announced on Tuesday that it will purchase gilts worth INR 800.00 billion via four auctions in April.

"The OMO spree doesn't seem to end," Madhavi Arora, chief economist at Emkay Global Financial Servicies, said Tuesday. "Going forward, 1QFY26 (Apr-Jun) is poised for a very comfortable liquidity," Arora added.

Market participants also speculated the RBI's latest liquidity easing measures may be hinting at a repo rate cut as well as a change in the policy stance to 'accommodative' next week. "The RBI's aggressive liquidity easing measures suggest a strong intent on ensuring smooth monetary transmission as it continues on its rate easing path... we continue to expect 25 bps of rate cuts each in the April and June policies, accompanied by a stance change to accommodative," Kotak Mahindra Bank said in a note on Tuesday.

OUTLOOK

* On Thursday, the one-day call rate may open near the repo rate of 6.25% due to demand for funds from banks in early trade.

* 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 250.00 billion at 1000-1030 IST.

CALL RATE

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

6.35%--Wednesday's open for one-day loans

5.80%--Saturday's close for four-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Liquidity improves, but call above SDF on demand for funds

By Kabir Sharma

MUMBAI – The interbank call money rate was above the standing deposit facility rate of 6.00% on Wednesday due to demand for funds from banks early in the day, dealers said, even as the liquidity situation was considerably better than earlier. "This is just the morning rush. We are too comfortable as lquidity is now in surplus after so long. Government spending came in higher than what was expected and that has definitely helped," a dealer at a private bank said.

While the one-day interbank call money rate cooled to 6.15% from the day's high of 6.35% on Wednesday, the weighted average rate was 6.33% at 1015 IST. The weighted average rate in the larger triparty repo market was lower at 6.02%.

Dealers estimated the government's month-end spending to have added INR 2.0 trillion-INR 2.5 trillion to the banking system. The Reserve Bank of India's various liquidity easing measures have also helped bring down borrowing costs, with data released on Tuesday showing the central bank absorbed INR 893.99 billion on Sunday, up from INR 716.72 billion on Saturday. However, liquidity may again slip into deficit, dealers said, as the three long-term variable rate repos conducted in February for a total of INR 1.83 trillion are to reverse in the next few days. "We cannot say that the surplus is going to stay because the reversal will drain a lot of liquidity," a dealer at a state-owned bank said.

Seemingly anticipating the above, the RBI on Tuesday said it would purchase gilts worth INR 800.00 billion through four separate open market auctions this month, starting with an auction for INR 200.00 billion on Thursday.

Owing to the improved liquidity conditions, dealers expect Wednesday's variable rate repo auction for INR 250.00 billion to see bids worth INR 100 billion. Reversal of five-day variable rate repos conducted on Friday will see INR 884.24 billion leave the system on Wednesday.  End

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

Edited by Avishek Dutta

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