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Informist, Tuesday, Apr. 22, 2025

By Christina Titus 

MUMBAI – The inter-bank money call rate ended below the Reserve Bank of India's repo rate of 6.0% Tuesday on lower fund requirements, dealers said. Demand was very low in the inter-bank money market Tuesday due to a lack of significant outflows. The one-day call money rate closed at 5.85% and the weighted average rate was at 5.87%. Volumes in the inter-bank money market were INR 163.45 billion Tuesday, down from INR 184.23 billion Monday. Total money market volumes, including the tri-party repo market, were INR 6.23 trillion. 

The RBI net absorbed INR 462.35 billion on Monday from the banking system–-a proxy for liquidity surplus––down from INR 1.00 trillion Sunday. This is the first time since Mar. 30 that the net liquidity absorbed has fallen below INR 1 trillion. Banks had parked INR 873.51 billion at the RBI's Standing Deposit Facility Monday. Market participants had not expected the liquidity surplus to go down sharply after the goods and service tax outflows. "We anticipated the system to have INR 1 trillion liquidity surplus even after the outflows," a dealer at a state-owned bank said. 

The fall in the system liquidity is mainly due to higher-than-expected tax outflows, the dealer said. Though liquidity is not a concern, the INR 460 billion figure is not a comfortable level for the system, the dealer said. Therefore, the dealer expects the RBI to come out with more liquidity measures such as open market operations, as these get a better response than variable rate repo auctions. 

Another dealer from a private sector bank said he expects the RBI to announce short-term variable rate repo auctions of 4-7 days, along with overnight auctions. Overnight variable repo rate auctions failed to attract higher bids due to cheaper funds in the money market, where rates were around 5.80% levels. The RBI's variable repo rate auction Tuesday received bids worth INR 178.92 billion, compared with the notified amount of INR 1.25 trillion. 

However, market participants are of the view that the system liquidity surplus will get back to INR 1 trillion by the end of month due to government month-end spending and the RBI's continuous liquidity easing measures. 

OUTLOOK

* Wednesday, the one-day call rate may open below repo rate due to lack of significant outflows, dealers said. 

* During the day, the call rate is seen at 5.70-6.10% and the tri-party repo rate at 5.50-6.00%.

* RBI will hold an overnight variable rate repo auction for INR 1 trillin 1000-1030 IST Wednesday.

CALL RATE

5.85%--Tuesday close for one-day loans

5.95%--Tuesday open for one-day loans

5.87%--Monday close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Near repo rate; volume seen weak on completion of GST payments

MUMBAI – The inter-bank call money rate opened near the Reserve Bank of India's repo rate of 6.0% despite outflows from the banking system on account of goods and service tax payments. Dealers see low demand in the money market Tuesday as GST outflows were completed and there are no significant outflows in the coming days. 

The one-day call money rate opened at 5.95% and the weighted average rate was at 5.96%. The RBI net absorbed INR 462.35 billion on Monday from the banking system–-a proxy for liquidity surplus––down from INR 1.00 trillion Sunday. Banks had parked INR 873.51 billion at the RBI's Standing Deposit Facility Monday. The net liquidity absorbed has fallen below INR 1 trillion for the first time since Mar. 30.

Market participants attributed the decline in liquidity surplus to outflows on account of GST payment, which was estimated between INR 1.5 trillion and INR 2.0 trillion. "The outflows for GST (goods and service tax) were higher than what we were expecting and that's why yesterday (Monday) the (money market) rates went up near end," a dealer at a private bank said. "But now from here the rates will remain moderate as there are no major outflows and RBI is also there to inject funds when needed."

Dealers expect systemic liquidity will be supported by the month-end government spending. "I expect liquidity surplus to be around this level (INR 462.35 billion) for next 2-3 days. Afterwards it will improve due to government spending, which will be around INR 1.8 trillion," a dealer at a public sector bank said.  

The RBI has announced an overnight variable rate repo auction of INR 1.25 trillion Tuesday. This is the second time the regulator has announced a higher ticket auction in the week after the auction of INR 1 trillion at the variable rate repo auction Monday. However, the auction Monday did not garner much demand owing to cheaper availability of funds in the money market. 

Demand at the overnight variable rate repo auction Tuesday is expected to be low, with borrowers expected to bid for just INR 275 billion, sharply lower than the notified amount of INR 1.25 trillion, according to an Informist poll.  (Christina Titus)

End

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

Edited by Saji George Titus

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