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Informist, Thursday, Apr. 3, 2025

By Kabir Sharma

MUMBAI – Borrowing costs in the call market fell further on Thursday as liquidity conditions in the banking system continued to improve, dealers said. The one-day interbank call money rate ended at 6.05%, while the weighted average rate was 5.99%, down 20 basis points from Wednesday. In a sign of how much financial conditions have improved, the call rate did not rise above 6.10% on Thursday, well below the repo rate of 6.25%.

"There is nothing shocking about the rates being where they are. What's surprising is that some deals are still happening at repo or near that when rates in TREPS (triparty repo) have fallen so low," a dealer at a state-owned bank said. The weighted average rate in the larger triparty repo market, which includes mutual funds, fell to 5.61% on Thursday from 5.75% Wednesday as rates across money markets cooled due to the Reserve Bank of India's continued infusion of durable liquidity and larger-than-usual month-end spending by the government. On Wednesday, the central bank absorbed INR 1.93 triliion of liquidity on a net basis, the most in four-and-a-half months.

Going ahead, the RBI's daily variable rate repo auctions are expected to see subdued demand. "Only PDs (primary dealerhips) could be borrowing at the auction. Otherwise, there is no need for the VRR anymore," a dealer at a private bank said. The auction on Thursday for INR 250.00 billion saw only INR 60.12 billion being borrowed.

Dealers also said the reversal of long-term repos totalling INR 1.83 trillion on Friday and Monday will not meaningfully push up borrowing costs given the surplus liquidity conditions at the moment as well as the inflow of INR 200.00 billion following the RBI's gilt purchases via open market auction on Thursday.

OUTLOOK

* On Friday, the three-day call rate may open near the repo rate due to demand for funds from banks in early trade.

* During the day, the call rate is seen in the range of 5.80-6.30% and the triparty repo rate in the range of 5.75-6.20%.

* The RBI will conduct a three-day variable rate repo auction for INR 250.00 billion at 1000-1030 IST.

CALL RATE

6.05%--Thursday's close for one-day loans

6.10%--Thursday's open for one-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate on improved liquidity; VRR to see low demand

MUMBAI – The interbank call money rate was below the repo rate on Thursday owing to improved liquidity conditions in the banking system, dealers said. "Rates are going to stay below repo as there is ample liquidity in the system and no major outflows until tomorrow (Friday)," a dealer at a state-owned bank said. The one-day call rate was at 6.10% on Thursday against 5.80% at close on Wednesday. 

The weighted average call rate also eased to 6.10% on Thursday from 6.33% around the same time on Wednesday. The weighted average rate in the larger triparty repo market fell sharply to 5.72% from 6.02% on Wednesday.

Rates across money markets cooled as liquidity remained in surplus due to the Reserve Bank of India's various liquidity easing measures and a larger than usual chunk of government month-end spending. Dealers estimated the government's month-end spending to have added INR 2.0 trillion-INR 2.5 trillion to the banking system. The central bank absorbed liquidity to the tune of INR 1.93 triliion on Wednesday, up from INR 1.42 trillion on Tuesday. 

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. Owing to the improved liquidity conditions, dealers expect Thursday's variable rate repo auction for INR 250.00 billion to see only bids worth INR 50 billion. 

The RBI's first of four open market auctions in April to purchase gilts also takes place between 0930-1030 IST Thursday for a total amount of INR 200.00 billion. (Kabir Sharma)  End

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

Edited by Deepshikha Bhardwaj

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