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Informist, Tuesday, Apr. 8, 2025

By Vidhushi RajPurohit

MUMBAI – Activity in the money market remained tepid as traders refrained from borrowing at the prevailing rates ahead of the Reserve Bank of India's Monetary Policy Committee's rate decision, due Wednesday, dealers said. The interbank borrowing rates traded sharply lower than the central bank's standing deposit facility rate for most of the day. The call rate for one-day loans ended at 5.60%, below the standing deposit facility rate of 6.00%. 

"The rates were really low, as everyone is expecting a rate cut tomorrow, so it makes sense for traders not to borrow when the next day they can get funds at lower rates," a dealer at a private bank said. 

The volume in the call money market was INR 155.65 billion, lower than INR 172.39 billion Monday. The trading volume in the larger triparty repo market--which includes mutual funds – was INR 4.19 trillion. Mutual funds, which are major lenders in the triparty repo market, have ample funds as they do not have any redemption pressure and issuances in the short-term debt market have also eased, leading them to deploy their funds in the money market, dealers said.  

Despite the large volume, rates at the triparty repo market remained constrained in a narrow band of 5.85-6.15%, and below 6.25%, or the current repo rate. Dealers reasoned there is ample liquidity in the banking system for banks to manage their operations and moreover, expectations of easing policy rates also kept many traders on the sidelines Tuesday. On Monday, the net liquidity absorbed by the RBI was INR 1.41 trillion, slightly lower than INR 1.61 trillion on Sunday.

The lack of any significant outflows and upcoming inflows from RBI's open market auctions is also expected to keep the systemic liquidity in a comfortable position for the rest of the month, dealers said. The central bank has already conducted two OMO purchase auctions of INR 200 billion each this month, and it is scheduled to conduct two more of a similar quantum this month. 

"By the end of this month, we may see a surplus of around INR 2 trillion as there will be a total inflow of INR 800 billion from the OMO auction and then towards month's end we will also have (month-end) government spending," a dealer at a state-owned bank said. "So, looking at the liquidity the RBI is in a position right now that it can go for a 25 bps rate cut."

Market participants widely expect the RBI's MPC to cut the repo rate by 25 basis points, the second rate cut after the first rate cut in nearly five years in February. According to an Informist poll of 15 economists, the MPC is expected to lower the repo rate to 6.00% Wednesday. Some traders also expect the MPC to shift the gear on its policy stance to 'accommodative' from 'neutral'. 

OUTLOOK

* On Wednesday, the two-day call rate will likely open near the repo rate as banks will borrow funds to meet their reserve requirements in early trade.

* During the day, the money market rates will take cues from the RBI's MPC meeting decision on policy rates.

CALL RATE

5.60%--Tuesday's close for one-day loans

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: At repo rate in early trade, seen easing on ample liquidity

MUMBAI – The interbank call money rate was at the Reserve Bank of India's repo rate as banks rushed in early trade to meet their reserve requirements, dealers said. Market participants are of the view that interbank borrowing rates might ease as demand for funds from banks is likely cool off towards market close. Traders see the current liquidity as ample to manage their funding needs and this, coupled with the daily variable rate repo auctions by the RBI, has further mitigated the need to borrow funds from the money market. 

On Monday, the net liquidity absorbed by the RBI was INR 1.41 trillion, slightly lower than INR 1.61 trillion on Sunday. Traders attributed the narrowing of the surplus to the payment of income tax deducted at source and excise duty on Monday. Dealers pegged the tax payments at INR 700 billion, and the major chunk of the outflow was managed by funds parked by banks at the RBI's Standing Deposit Facility. On Monday, banks parked INR 1.65 trillion at the RBI's Standing Deposit Facility, down from INR 1.82 trillion parked on Sunday.

"The amount of TDS was not that high, and it did not impact the surplus figure as much as banks had more than adequate funds at the SDF which they used to adjust the tax outflows," a dealer at a private bank said. "Today, the RBI has also doubled the size of the VRR auction so if there are some banks who need funds then they can avail that as well."

On Monday, after market hours, the RBI announced an overnight variable rate repo auction for INR 500 billion on Tuesday. Traders expect the auction to receive bidding up to INR 200 billion, less than half the notified amount, due to lower borrowing rates in the money market. At 0945 IST, the weighted average rate in the larger triparty repo market was at 6.09%, sharply below the RBI repo rate of 6.25%. 

"The rates in the money market are expected to ease below 6.00%, as we have seen in the last few days as the liquidity has turned to surplus. So, traders are not willing to borrow a high amount at the VRR auction when they can get funds at much lower rates from the money market," 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 Deepshikha Bhardwaj

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