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Informist, Monday, Apr. 7, 2025

By Vidhushi RajPurohit

MUMBAI – Moderation in systemic liquidity and the availability of a borrowing window by way of the daily variable rate repo auction drove money market rates down Monday, dealers said. The call rate for one-day loans ended at 5.85%, sharply below the Reserve Bank of India's standing deposit facility rate. The weighted average interbank borrowing rates were also below the RBI repo rate of 6.25%, reflecting the reduced demand from banks.

The weighted average call money rate was 6.16%. Similarly, in the larger triparty repo market, the weighted average rate was 6.11%. The easy accessibility of funds at cheaper rates resulted in subdued participation from traders at the overnight variable rate operation. At the overnight variable rate repo auction, banks borrowed INR 165.05 billion, much lower than the notified amount of INR 250.00 billion. The central bank set the cut-off at 6.26%, just above the repo rate floor and below the 6.50% rate for the Marginal Standing Facility the RBI offers to banks.

"The liquidity has improved a lot and there are daily VRR auctions for banks to meet their daily requirements, so the rates were expected to fall," a dealer at a private bank said. "Even at the overnight (variable rate repo) auction, the major borrowers were primary dealerships, as banks for now have quite enough funds."

On Sunday, the net liquidity absorbed by the RBI was INR 1.61 trillion as banks parked INR 1.82 trillion at the Standing Deposit Facility. On Monday, INR 500 billion to INR 700 billion flowed out of the banking system on account of payments for tax deducted at source and excise duty. However, this did not have a significant impact on interbank borrowing rates as dealers reasoned that the current systemic liquidity was comfortable enough to manage the outflows.

Market participants await the RBI's Monetary Policy Committee announcements Wednesday to gauge the rate trajectory. Market players widely expect the central bank to cut the repo rate by 25 basis points to 6.00%. The expectations of easing monetary policy and RBI's continued measures to inject the banking system with sufficient funds also kept market players away from the interbank borrowing market Monday, dealers said.

This month, the central bank announced it will purchase INR 800 billion of gilts through open market auctions, which is seen further increasing the liquidity surplus. The announcement of OMO purchase auctions furthered the hopes of traders that the rate-setting panel is aiming to cut the repo rate Wednesday. The banking system needs surplus liquidity to be able to transmit RBI rate cuts to the wider financial system, dealers said.  

OUTLOOK

* On Tuesday, the one-day call rate may open above the repo rate as banks will borrow funds to meet their reserve requirements in early trade.

* During the day, the call rate is seen in the range of 5.80-6.50% and the triparty repo rate in the range of 5.75-6.30%.

CALL RATE

5.85%--Monday's close for one-day loans

6.25%--Monday's open for one-day loans

5.75%--Saturday's close for two-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Weighted avg rate at RBI repo rate, seen falling below SDF rate

MUMBAI – Indian money market rates were at the Reserve Bank of India's repo rate due to demand for funds from banks in early trade to meet their reserve requirements, dealers said. However, traders were of the view that comfortable liquidity in the banking system and RBI's daily variable rate repo auction would drive down rates during the day. The rate is likely to fall below 6%, the rate the RBI pays for deposits at its Standing Deposit Facility.

The one-day call rate was at 6.25% Monday, up from 5.75% at close for two-day loans on Saturday. The weighted average call rate was 6.25% Monday, up from 5.77% on Saturday. The weighted average rate in the larger triparty repo market was at the RBI's Standing Deposit Facility rate of 6.00%.

On Friday, the net liquidity absorbed by the RBI was INR 1.79 trillion, lower than the INR 2.16 trillion absorbed on Thursday, RBI data showed. The reduction in the surplus systemic liquidity was owing to the reversal of two long-term variable rate repos conducted in February, which saw a total outlfow of INR 1.25 trillion. Dealers said the major portion of the reversal was adjusted by the amount parked by banks at the RBI's Standing Deposit Facility. RBI data showed that banks parked INR 2.25 trillion at the Standing Deposit Facility, down from a record high of INR 4.13 trillion Thursday.

In the coming days, some strain on banking system liquidity is expected due to outflows on account of excise duty and income tax deducted at source, dealers said. These outflows are expected to start Monday and are likely to drain around INR 500 billion to INR 700 billion, dealers said.  

Despite the tax outflow, dealers expect money market rates to ease as the RBI is scheduled to provide transient liquidity of INR 250 billion through its overnight variable rate repo auction. Dealers expect the auction to see bids worth INR 100 billion. "The surplus amount has come down, but liquidity is still quite comfortable and the (money market) rates are also quite low, so participation at the auction will be mild," a dealer at a state-owned bank said. (Vidhushi RajPurohit) 

End

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

Edited by Nishant Maher

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