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Informist, Wednesday, Apr. 9, 2025

By Vidhushi RajPurohit

MUMBAI – The interbank call money rate ended below the new Standing Deposit Facility rate of 5.75% on Wednesday as demand for funds from banks was low due to comfortable banking system liquidity, dealers said. Interbank borrowing rates fell across tenures after the Reserve Bank of India's Monetary Policy Committee announced a 25-basis-point cut in its policy repo rate to 6.00%. Consequently, the Standing Deposit Facility rate was adjusted downwards by 25 bps to 5.75%.

The MPC also changed its liquidity stance to 'accommodative' from 'neutral', in line with market expectations. RBI Governor Sanjay Malhotra said the central bank will ensure that liquidity is sufficiently in surplus to meet the needs of the economy and banking system.

The two-day call money rate ended at 5.60% Wednesday, unchanged from one-day loans for Tuesday, with the weighted average rate also declining sharply to 5.92% from 6.15%. Similarly, the weighted average rate in the larger tri-party repo market, which includes mutual funds, also declined steeply to 5.76%, from 6.06% the previous day.

After the repo rate was cut, the overnight Mumbai Interbank Offered Rate also fell sharply by 23 bps to 6.02%, its lowest level since Dec. 6, 2022. Traders were of the view that the rates will likely see further softening in the upcoming days as there is sufficient surplus in the banking system for the repo rate cut to transmit to the overnight borrowing rates.

"Rates have gone down today, but the market will take time to react to the overall impact of the rate cut," a dealer at a private bank said. "Banks have enough buffer of funds now, so the rates will go down more."

In February, when the MPC delivered a 25 bps repo rate cut after five years, the net liquidity injected figure--a proxy for systemic liquidity deficit--was INR 1.08 trillion. Currently, the liquidity in the banking system remains in surplus, with the net injected figure by the RBI showing the central bank absorbed INR 1.33 trillion on Tuesday, with INR 1.63 trillion parked by banks at the Standing Deposit Facility. Compared to this, banks borrowed only INR 3.85 billion from the RBI through its Marginal Standing Facility.

As funds were adequate, banks also increased their cash reserves maintained with the central bank to INR 9.43 trillion Tuesday from INR 9.38 trillion Monday, RBI data showed. The average daily cash reserve requirement for the current fortnight ending Apr. 18 is INR 9.32 trillion.

OUTLOOK

* Financial markets are shut on Thursday for Mahavir Jayanti. On Friday, the four-day call rate will likely open near the repo rate as banks will borrow funds to meet their reserve requirements early in the trade.

* During the day, the money market rates will likely remain in the range of 5.60-6.10%.

CALL RATE

5.60%--Wednesday's close for two-day loans

6.00%--Wednesday's open for two-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate on ample liquidity; MPC decision awaited

MUMBAI – Money market rates were below the Reserve Bank of India's repo rate on expectations that the Reserve Bank of India's Monetary Policy Committee will cut the repo rate by 25 basis points Wednesday, dealers said. Most traders expect the rate-setting committee to cut the repo rate to 6.00% from 6.25% and change its stance to 'accommodative' from 'neutral'. 

At 0920 IST, the two-day call money rate was at 6.10%, against 5.60% at close for one-day loans Tuesday. The weighted average triparty repo – a larger market that includes mutual funds – rate was at 5.86%, sharply lower than 6.09% around the same time on Tuesday. RBI-administered markets will be shut on Thursday for Mahavir Jayanti. 

A short while from now, RBI Governor Sanjay Malhotra will announce the rate-setting panel's decision. An Informist poll of 15 economists forecast a rate cut of 25 bps, but economists were divided on whether the committee would opt for a softer stance. "The decision on the liquidity stance will be closely watched out for," a dealer with a private bank said. "Liquidity is comfortable right now, so a rate-cut looks like to be on the table."

Liquidity in the banking system remained in surplus, with the net injected figure by the RBI showing the central bank absorbed INR 1.33 trillion on Tuesday, with INR 1.63 trillion parked by banks at the Standing Deposit Facility. Compared to this, banks borrowed only INR 3.85 billion from the RBI through its Marginal Standing Facility.

On Wednesday, INR 200.00 billion will flow in on account of the settlement of RBI's open market purchases of gilts on Tuesday. This was the second OMO purchase auction of the month and two more auctions worth INR 400 billion are scheduled for the upcoming weeks in April. Should the MPC cut the repo rate Wednesday, traders expect the RBI to conduct more such auctions to ensure that the systemic liquidity remains in adequate surplus for easy transmission of the rate cut to the wider financial system. 

Having adequate funds, banks also increased their cash reserves maintained with the central bank to INR 9.43 trillion from INR 9.38 trillion Monday, RBI data showed. The average daily cash reserve requirement for the current fortnight, ending Apr. 18, is INR 9.32 trillion. (Vidhushi RajPurohit)

End

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

Edited by Ashish Shirke

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