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Informist, Friday, Apr. 4, 2025

By Kabir Sharma

MUMBAI – The call rate for three-day loans ended at the Standing Deposit Faciity rate of 6.00% on Friday, while the weighted average rate rose 12 basis points to 6.11% on some demand for funds from banks due to it being a reporting Friday, dealers said. "There was no need for additional liquidity. But since it's a reporting Friday, banks had to meet the reserve needs," a dealer at a private bank said.

Similar to the call market, rates in the triparty repo segment also rose on Friday, with the weighted average rate increasing to 6.03% from 5.61% on Thursday owing to "a little strain" from the reversal of long-term variable rate repo auctions, a dealer at a state-owned bank said. Two long-term repos conducted by the Reserve Bank of India in late February totalling INR 1.25 trillion were reversed on Friday. A third repo operation worth INR 579.51 billion will be reversed on Monday. However, market participants said the reversals are unlikely to lead to a sustained rise in borrowing costs given excess liquidity in the system and with the RBI continously infusing funds. This month, the central bank will look to purchase INR 800.00 billion of gilts through open market auctions, which is seen further increasing the liquidity surplus.

The improving liquidity conditions are reflecting in the central bank having to mop up increasingly large sum. On Thursday, the net liquidity absorbed by the RBI was INR 2.16 trillion, with banks parking a record high of INR 4.13 trillion at the Standing Deposit Facility. According to Kotak Institutional Equities, durable liquidity may rise above INR 3.00 trillion by the end of June from around INR 2.00 trillion currently, led by tepid currency in circulation leakage, the RBI transferring a huge dividend to the government higher than expectations, and additional OMO purchases or foreign exchange swaps to offset the impact of maturing forwards.

"While durable liquidity is likely to be comfortable over the next few months, banking system liquidity may fluctuate depending on the scale and pace of government spending. Further, we remain wary of the extent of FX intervention that may be necessary to offset the capital outflows amid global uncertainties from the trade/tariff policies of the US administration," Kotak Institutional Equities said.

OUTLOOK

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

* As is usually the case on Saturday, call money market volumes may remain low.

* 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 5.75-6.30%.

CALL RATE

6.00%--Friday's close for three-day loans

6.15%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo; improved liquidity pushes SDF placement to new high

MUMBAI – The interbank call money rate was below the repo rate early in the day on Friday as liquidity conditions in the banking system improved further. "The first week of the new financial year is usually like this. The government spending as been much more than expected and that is reflecting in the surplus. Also, inflows from the RBI's (Reserve Bank of India) open market purchases have come in today," a dealer at a state-owned bank said.

The three-day call money rate was at 6.00% at 1020 IST Friday compared with 6.05% for one-day loans at close on Thursday. The weighted average call rate was at 6.14%, while borrowing costs in the larger triparty repo market were 5.92%.

The RBI's continued infusion of liquidity in recent weeks has pushed liquidity further into surplus, with the central bank on Thursday absorbing a net INR 2.16 triliion. Banks, meanwhile, parked a record INR 4.13 trillion at the RBI's Standing Deposit Facility.

Dealers see rates in the triparty repo market rising during the day, given it is a reporting Friday and there will be outflows of INR 1.25 trillion due to the reversal of two long-term variable rate repos conducted in February. At the same time, INR 200.00 billion will flow in on account of the settlement of RBI's open market purchases of gilts on Thursday.

With plenty of funds available, Friday's three-day variable rate repo auction may see muted demand, dealers said. "Only INR 50 billion to INR 60 billion may be subscribed as PDs (primary dealers) are the only ones bidding these days," a dealer at a private bank said. "The rates in TREPS (triparty repo) are too low for banks to go to VRR auction," the dealer said.  (Kabir Sharma) End

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

Edited by Akul Nishant Akhoury

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