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Informist, Friday, Apr. 11, 2025

By Vidhushi RajPurohit and Christina Titus

MUMBAI – Indian money market rates declined sharply on Friday after the Reserve Bank of India cut the repo rate by 25 basis points to 6.00% on Wednesday and loosened its policy stace to accommodative, while promising to provide sufficient and adequate liquidity such that the surplus is in the ballpark of 1% of banks' net demand and time liabilities. The four-day call rate ended at 5.62% on Friday, with the weighted average rate falling to 5.79% from 5.91% on Wednesday. Similarly, the weighted average rate in the larger tri-party repo market, which includes mutual funds, was down at 5.73% from 5.76%. According to dealers, borrowing rates might soften further.

Key in dragging down borrowing costs in the money market has been the increasing liquidity surplus since the end of March. The RBI on Thursday absorbed INR 1.86 trillion on a net basis, with banks parking INR 1.55 trillion at the Standing Deposit Facility. With liquidity plenty, the RBI's four-day variable rate repo auction for INR 250.00 billion saw only INR 143.17 billion being borrowed.

With sytemic liquidity conditions continuing the improve--the central bank on Friday said it would purchase another INR 400.00 billion of gilts via an open market auction next week--some traders expect the RBI to discontinue its daily repo operations. However, on Wednesday, Governor Sanjay Malhotra had said the daily repo auctions were not to provide liquidity to the system as a whole but certain individual entities that may be facing a crunch. The RBI has already announced that it will conduct an overnight repo auction for INR 250 billion on Tuesday as well as a 43-day operation for INR 1.50 trillion on Thursday.

Traders are of the view that banking system liquidity will likely remain in surplus in April with no significant outflows scheduled except for Goods and Services Tax payment later in the month, which could lead to a marginal deficit of less than INR 500 billion, according to a dealer at a state-owned bank.

"...we assume RBI will attempt to maintain around INR 2.0 trillion-INR 2.5 trillion core liquidity surplus on average in the current fiscal year, after ending the last fiscal year around the same threshold of INR 2.0 trillion. However, this indicative commitment may still require durable liquidity injection of around INR 3.0 trillion, basis our expectation of BoP (Balance of Payment) deficit. Out of this around INR 3.0 trillion, we expect around 90% to be via OMO purchases and balance via FX swaps," ICICI Securities Primary Dealership said in a note Thursday.

OUTLOOK

* Financial markets are shut on Saturday and Monday, the latter on account of Ambedkar Jayanti. On Tuesday, the one-day call rate will likely open near the repo rate as banks will borrow funds to meet their reserve requirements early in the day.

* During the day, the money market rates will likely be in the range of 5.60-6.00%.

CALL RATE

5.62%--Friday's close for four-day loans

5.85%--Friday's open for four-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Rates down on ample liquidity, lack of major outflows  

MUMBAI – Interbank borrowing rates were down on Friday as liquidity in the banking system improved further due to inflows from the settlement of open market auction of gilts, dealers said. Traders expect money market rates to trade lower during the day due to adequate funds and lack of significant scheduled outflows. At 0920 IST, the four-day call money rate was at 5.85%, against 5.60% at close for two-day loans on Wednesday. 

"There is a high surplus of funds in the (banking) system, and we do not have any outflows scheduled for now, so that is keeping demand from banks muted," a dealer at a state-owned bank said. "It's majorly RBI's (Reserve Bank of India) measures – the OMO auctions and daily VRR (variable rate repo) auctions that have led to surplus funds."

RBI-administered markets were shut on Thursday for Mahavir Jayanti. The weighted average triparty repo – a larger market that includes mutual funds – rate was at 5.77%, close to the RBI's Reserve Bank of India's Standing Deposit Facility rate of 5.75%. 

Interbank borrowing rates across tenures were down after the RBI's Monetary Policy Committee announced a 25-basis-point cut in its policy repo rate to 6.00% on Wednesday. Consequently, the Standing Deposit Facility rate was adjusted downwards by 25 bps to 5.75%. Traders were of the view that money market rates would see further softening in the coming days as there is sufficient surplus in the banking system for the repo rate cut to transmit to the overnight borrowing rates.

Liquidity in the banking system improved further, with the net injected figure by the RBI showing the central bank absorbed INR 1.82 trillion on Wednesday, up from INR 1.33 trillion Tuesday. Banks parked INR 2.10 trillion for two days on Wednesday, up from INR 1.63 trillion parked by banks for one day on Tuesday at the Standing Deposit Facility. Compared to this, banks borrowed only INR 7.57 billion from the RBI through its Marginal Standing Facility.

Traders attributed the increase in the surplus figure to an inflow of INR 200.00 billion from the OMO purchase auction. On Wednesday, after market hours, the RBI announced a four-day variable rate repo auction for INR 250 billion for Friday. Traders expect the auction to receive bidding up to INR 100 billion, less than half the notified amount, due to lower borrowing rates in the money market.  End

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

Edited by Akul Nishant Akhoury

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