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Informist, Wednesday, Apr. 23, 2025

By Christina Titus

MUMBAI – The inter-bank call money rate closed below the Reserve Bank of India's repo rate of 6.0% Wednesday due to lack of significant outflows, according to dealers. "There was some demand today (Wednesday) at the time when rates were very low," a dealer at a state-owned bank said. "Borrowers were taking advantage of lower rates in call market to park at SDF (Standing Deposit Facility)."  

The one-day call money rate ended at 5.95% Wednesday, with a volume of INR 164.34 billion. The weighted average call rate was 5.91%. Total money market volumes were INR 6.16 trillion Wednesday. 

The RBI net absorbed INR 382.44 billion on Tuesday from the banking system–-a proxy for liquidity surplus––down from INR 462.35 billion on Monday. Banks had parked INR 912.22 billion at the RBI's Standing Deposit Facility Tuesday, up from INR 873.51 billion Monday. Despite the fall in liquidity surplus, lenders are parking large amounts at the Standing Deposit Facility. Given the banks' continuous practice of parking funds at the Standing Deposit Facility and the arbitrage trading done by a few banks, funds parked under the Standing Deposit Facility are expected to be higher.

The RBI's variable repo rate auction Wednesday received bids worth INR 188.72 billion, far lower than the notified amount of INR 1 trillion. Demand at the variable repo rate auction was very low due to low rates in the money market, dealers said. Market participants believe that the RBI is continuing with the high-ticket variable rate repo auctions to provide confidence to the system in supporting liquidity. 

Dealers expect the RBI to announce more open market operations than variable rate repo auctions to improve liquidity, which has come down sharply after the outflows on account of payments of the Goods and Service Tax. On Tuesday, the RBI will conduct the last set of open market operations auction scheduled for this month. The central bank is set to purchase gilts worth INR 200 billion through the auction. Consequently, market participants expect the liquidity surplus will come back to INR 1 trillion by the end of April. Inflows from month-end government spending are also expected to start by next week, which will improve liquidity. 

OUTLOOK

* Thursday, the one-day call rate may open below the repo rate due to likely 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 trillion at 1000-1030 IST Thursday.

CALL RATE

5.95%--Wednesday close for one-day loans

5.95%--Wednesday open for one-day loans

5.85%--Tuesday close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Opens near repo rate as system liquidity surplus falls

MUMBAI – The inter-bank money call rate opened near the Reserve Bank of India's repo rate of 6.0% Wednesday due to a fall in systemic liquidity surplus and some demand for funds from banks to maintain their cash reserves, according to dealers. The one-day call money rate opened at 5.95% and the weighted average rate was 6.00%. At 0930 IST, the overnight call rate was 6.00%.

There was most likely a 'fat finger' trade in the tri-party repo market at 6.50% in early trade, but the tri-party repo rate soon settled around 5.90%. Dealers expect tri-party market rates to cool around 5.80% after the variable rate repo auction.

"It is difficult to tell who is there in the tri-party market because the counterparty is hidden there," a dealer at a state-owned bank said. "But generally, primary dealerships only bid at higher levels at the beginning. Demand is there because liquidity has fallen. Primary dealerships are borrowing because they don't want to miss the opportunity to buy gilts right now."

The RBI net absorbed INR 382.44 billion on Tuesday from the banking system–-a proxy for liquidity surplus––down from INR 462.35 billion on Monday. This is the second consecutive day the systemic liquidity surplus is below INR 1 trillion. Banks had parked INR 912.22 billion at the RBI's Standing Deposit Facility Tuesday, up from INR 873.51 billion Monday.

Payments for RBI's open market operations auction of INR 200 billion held on Tuesday will flow into the banking system on Wednesday. However, dealers said it would not have an impact on system liquidity on account of the payment of INR 108.70 billion for state bonds auctioned on Tuesday. 

Demand at the overnight variable rate repo auction on Wednesday is likely to be low, with borrowers expected to bid for INR 225 billion, sharply lower than the notified amount of INR 1 trillion, an Informist poll showed.  (Christina Titus)

End

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

Edited by Tanima Banerjee

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