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Informist, Thursday, Apr. 17, 2025

By Christina Titus 

MUMBAI – The inter-bank call money rate ended below the Reserve Bank of India's repo rate Thursday on weaker demand and sufficient liquidity in the system, dealers said. The higher demand expected by a few market participants ahead of the long weekend did not materialise, as evident from the fall in volume in call money as well as for the triparty repos. A few dealers had expected demand would rise also on account of early outflows for goods and services tax, which also did not materialise. Dealers said most of the requirements for maintaining reserves over the long weekend seem to have been met Wednesday as volumes were high that day, dealers said.

The four-day call money rate closed at 5.75% Thursday, while the weighted average rate was 5.89%. The volumes were INR 146.28 billion Thursday, down from INR 180.05 billion Wednesday. The weighted average rate in the tri-party repo market, which includes mutual funds, was at 5.72%, slightly lower than the RBI's Standing Deposit Facility rate of 5.75%.

The RBI net absorbed INR 1.70 trillion on Wednesday from the banking system, slightly up from INR 1.60 trillion Tuesday. Banks had parked INR 1.88 trillion at the RBI's Standing Deposit Facility on Wednesday.

"Demand did not pick up today (Thursday) as surplus has increased and that's why even for VRR traders did not put high bids," a dealer at a private bank said. "Monday for GST payment some banks can choose to borrow." Traders estimate goods and services tax outflow to be around INR 800 billion to INR 1 trillion. 

The variable rate repo auctions conducted Thursday did not get much subscription due to lack of fund requirements, ample systemic liquidity and availability of cheaper funds in money markets, dealers said. The banks borrowed INR 257.31 billion at 43-day variable rate repo auction, significantly lower than the notified amount of INR 1.50 trillion. 

"Market expectation for 43-day VRR was around INR 800 billion. The subscription was very low as most banks did not have long-term requirement now, with no immediate need for asset-liability management. The system liquidity is in comfortable level," a dealer at a state-owned bank said. Similarly, the RBI's four-day variable rate repo auction received bids worth INR 65.14 billion, far lower than the notified amount of INR 250 billion. 

In addition, the RBI injected INR 400 billion through open market operations Thursday for which the settlement will be on Monday. On the other hand, INR 300 billion will flow out of the system as payments for the gilt auctions Thursday, and this will to a large extent negate the impact of the inflow of IRN 400 billion from the RBI's bond purchases under its open market operations.

OUTLOOK

* Monday, the one-day call rate may open higher than the repo rate due to increased demand from banks on account of goods and services tax outflow. 

* During the day, the call rate is seen at 5.80-6.20% and the triparty repo rate at 5.75-6.00%.

* RBI will hold an overnight variable rate repo auction for INR 250 billion 1000-1030 IST Monday. 

CALL RATE

5.75%--Thursday's close for four-day loans

5.95%--Thursday's open for four-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Near repo rate; demand seen high ahead of long weekend

MUMBAI – The inter-bank money market rate opened near the Reserve Bank of India's repo rate of 6.0% due to some demand seen ahead of the long weekend, dealers said. "There will be more demand today (Thursday)," a dealer at a private sector bank said. "We will also see outflows on account of goods and service tax (payments), which is expected to start from 1200 IST." The outflow is estimated to be around INR 1 trillion. Indian markets will be closed Friday for Good Friday. 

The four-day call money rate opened at 5.95%, while the weighted average rate was at 5.93%. The RBI net absorbed INR 1.70 trillion on Wednesday from the banking system, slightly up from INR 1.60 trillion Tuesday. This signifies the liquidity surplus in the banking system. Banks had parked INR 1.88 trillion at the RBI's Standing Deposit Facility Wednesday.

Due to surplus liquidity in the banking system, some banks are trying to take the advantage of the arbitrage between money market rates and the Standing Deposit Facility rate of 5.75%, according to some dealers. 

Liquidity is expected to remain surplus on account of RBI measures Thursday. Apart from the four-day variable rate repo auction, the central bank is set to conduct a 43-day variable rate repo auction for INR 1.50 trillion and also purchase government securities worth INR 400 billion via an auction under its open market operations. 

"Even though there are GST (goods and services tax) outflows, the demand at the VRR auctions (four-day and 43-day) won't be high," a dealer at a state-owned bank said. "Everyone will try to fulfill their fund requirement through money market itself." 

Demand at the four-day variable rate repo auction is expected to be tepid with market participants seen borrowing just INR 100 billion, less than half the notified amount of INR 250 billion, according to an Informist poll.  (Christina Titus)

Edited by Ashish Shirke

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