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Informist, Wednesday, Apr. 16, 2025

By Christina Titus and Vidhushi RajPurohit

MUMBAI – The inter-bank money market rates ended lower than the Reserve Bank of India's repo rate of 6.0% on Wednesday due to comfortable liquidity, dealers said. "The volumes were higher throughout the day due to demand seen ahead of the long weekend to meet their requirements as the current reporting fortnight ends Thursday. The rates are lower for one-day loans compared to four-day loans," a dealer at a state-owned bank said. Indian markets will be shut on Friday for Good Friday.

The one-day call money rate ended at 5.75%, moving in the range of 4.95-5.95% during the day, while the weighted average rate was at 5.85%. The volume in the inter-bank money market increased to INR 180.05 billion from INR 149.71 billion on Tuesday. The overall money market volume rose to INR 6.41 trillion from 6.24 trillion Tuesday. 

Demand was also on account of the upcoming outflow on account of the goods and services tax next week, according to dealers. "Both today (Wednesday) and tomorrow (Thursday) demand is expected to be higher because of outflows for GST (goods and services tax)," a dealer at a primary dealership said. "This time 20th is on a Sunday, and Friday is also off. So the payment will start from today itself."

As liquidity is comfortable, dealers do not expect much demand from banks at the 43-day variable rate repo auction of INR 1.50 trillion scheduled Thursday. "We expect more participation from primary dealers for the auction. Demand for the auction will depend on individual banks' fund requirements as the entire system is in surplus," a dealer at a state-owned bank said. 

The RBI net absorbed INR 1.60 trillion on Tuesday from the banking system, marginally down from INR 1.65 trillion on Monday. The figure is a proxy for the liquidity surplus in the banking system. On the other hand, banks parked INR 1.77 trillion at the RBI's Standing Deposit Facility.

The RBI has not announced its usual fortnightly variable rate repo auction since the last two reporting Fridays. Some traders expect the central bank will skip it for a third time on account of its long-term repo auctions, which supplement the daily repo auctions. However, other dealers were of the view that the RBI's continued focus on liquidity injection would lead it to recommence the 14-day liquidity management operation. 

"RBI has been regularly injecting funds even though the surplus is high, and even money market rates are low. So it looks like it might not stop its 14-day repo auction as well," a dealer at a state-owned bank said. "Even the RBI governor said that the repo auctions will be there even if there are individual entities who might need funds."

OUTLOOK

* Thursday, the four-day call rate may open slightly higher than the repo rate due to increased demand from banks to meet funding requirements ahead of the weekend.

* During the day, the call rate is seen at 5.80-6.10% and the triparty repo rate at 5.75-6.00%.

* RBI will hold a four-day variable rate repo auction for INR 250 billion 1000-1030 IST and a 43-day VRR auction for INR 1.50 trillion 1200-1230 IST.

* RBI will buy six gilts worth INR 400 billion via an auction under its open market operations, 0930-1030 IST.

CALL RATE

5.75%--Wednesday's close for one-day loans

5.95%--Wednesday's open for one-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, lack of major outflows

MUMBAI – Borrowing rates in the interbank call money market were lower than the Reserve Bank of India's repo rate of 6.00% Wednesday as banks have surplus liquidity to meet their funding needs, dealers said. The requirement for funds was also low on account of the absence of any significant scheduled outflows for the day, and this kept money market rates further subdued.    

At 0930 IST, the one-day call rate was 5.93%, and the weighted average rate was also the same. The weighted average rate in the larger tri-party repo market, through which mutual funds are allowed to lend and borrow, was at 5.77%, around the RBI's Standing Deposit Facility rate of 5.75%. Money market rates are expected to remain around the repo rate for the rest of the day as banks are likely to try to meet their funding requirements for the coming weekend to avoid borrowing funds via a four-day call on Thursday. Indian money markets will be shut on Friday on account of Good Friday.

"Volumes will remain around the same level in the money market as banks will try to borrow funds at lower rates today (Wednesday) as the four-day borrowing rate might be slightly higher," a dealer at a private bank said. "However, the rates will not spike as both banks and mutual funds are not facing any cash crunch and RBI is so active in providing funds that rates cannot rise higher."

The RBI is set to inject INR 2.30 trillion into the banking system through a long-term variable rate repo auction and three scheduled open market operations auctions of government bonds this month. On Tuesday, the central bank net absorbed liquidity of INR 1.60 trillion from the banking system and on the other hand, banks parked INR 1.77 trillion at the RBI's Standing Deposit Facility. The RBI's net liquidity absorption is a proxy for the liquidity surplus in the banking system.

Traders expect the RBI to continue injecting funds into the banking system for smoother transmission of rate cuts to the wider financial system. RBI's Monetary Policy Committee has lowered the repo rate by 50 bps since February. Moreover, data released on Tuesday showed India's CPI inflation for March was at a 67-month low of 3.34%, lower than the 3.6% etimated in an Informist poll. Economists expect the low print to provide room for deeper interest rate cuts by the MPC in 2025-26 (Apr-Mar).

"We continue to expect another 75-100 bps of repo rate cut to 5.00-5.25% by end-FY2026," economists at Kotak Bank said in a research report on Tuesday, after the CPI data was released. "We expect the RBI to keep banking system liquidity in surplus, at least over the next few months, to ensure a smooth policy transmission and avoid any credit squeeze in the event of any global trade-led disruption."

Owing to surplus funds and cheaper availability of funds in the money market, market participants say participation in the overnight variable rate repo auction is likely to be tepid. Banks and primary dealerships expect subscription at the auction to be around INR 95.00 billion, much lower than the notified amount of INR 250.00 billion.  (Vidhushi RajPurohit) 

End

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

Edited by Saji George Titus

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