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Informist, Thursday, Apr. 24, 2025

By Christina Titus

MUMBAI – The inter-bank call money rate fell in late trade Thursday due to a lack of demand for funds from banks and closed at 5.50%, sharply down from 5.95% Wednesday and also below the Reserve Bank of India's Standing Deposit Facility rate of 5.75%, dealers said. "Demand was low today (Thursday) and there is no systemic fund requirement currently," a dealer at a public sector bank said. "Borrowers are coming to the call market to meet their individual funding needs." 

Interbank call money volume was INR 127.10 billion. The weighted average call rate was 5.85%, down from 5.91% on Wednesday. "Primary dealers are also active in the call market nowadays as they need funds for investment in government securities," a dealer from another public sector bank said. The RBI's overnight variable repo auctions also receive more bids from primary dealers rather than banks, according to dealers. 

Total money market volume was INR 6.19 trillion Thursday, with the volume in the tri-party repo market at INR 4.11 trillion. "Mutual funds have large cash holdings and they are deploying that in TREPS (tri-party repos), mostly in the early trade," the dealer said. 

The RBI net absorbed liquidity of INR 786.91 billion Wednesday, up from INR 382.44 billion Tuesday. The increase in the liquidity surplus allowed banks to park INR 1.34 trillion at the RBI's Standing Deposit Facility Wednesday, up from INR 912.22 billion Tuesday.

The RBI's variable-rate repo auction Thursday received bids of INR 96.34 billion, sharply lower than the notified amount of INR 1 trillion. Despite the lower participation in the variable-rate repo auctions, market participants believe the central bank will continue with the auctions to signal continuous liquidity support. Dealers expect the call rate to remain low in the near-term as liquidity is not a major concern. Dealers expect the liquidity surplus will cross INR 1 trillion by the end of the month due to increased government spending and the RBI's continuous liquidity injection measures.  

OUTLOOK

* Friday, the three-day call rate may open below the repo rate due to lack of demand, dealers said. 

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

* RBI will hold a three-day variable rate repo auction for INR 500 billion at 1000-1030 IST Friday.

CALL RATE

5.50%--Thursday close for one-day loans

5.95%--Thursday open for one-day loans

5.95%--Wednesday close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Opens near RBI's repo rate on low liquidity surplus

MUMBAI – The inter-bank call money rate opened near the Reserve Bank of India's repo rate of 6.0% Thursday due to a slightly lower-than-comfortable liquidity surplus in the banking system. The one-day call money rate opened at 5.95% and the weighted average rate was 5.95%. Traders are of the view that a surplus of above INR 1 trillion is comfortable for the system. 

The RBI net absorbed INR 786.91 billion on Wednesday from the banking system, more than double the INR 382.44 billion on Tuesday. "Liquidity surplus has improved marginally, but not a big jump," a dealer at a state-owned bank said. "This (lower liquidity surplus) is weighing on the call rate, pushing it near the repo rate." However, he does not expect the call rate to breach the repo rate, but hover around 5.93-5.98%. 

Banks had parked INR 1.34 trillion at the RBI's Standing Deposit Facility Wednesday, up from INR 912.22 billion Tuesday. The increase in the funds at the standing deposit facility is mainly due to the arbitrage trade Wednesday, dealers said. Banks' cash balances with RBI, on the other hand, saw a decline to INR 9.62 trillion Wednesday from INR 9.83 trillion Tuesday.

Dealers said banks reduced the cash balances parked with the RBI, which lifted the liquidity surplus. Payments from open market operations auctions of INR 200 billion and overnight variable rate repo auctions also supported liquidity. Banks borrowed INR 188.72 billion from the variable rate repo auction Wednesday. 

Despite the low liquidity surplus, RBI's high-ticket overnight variable rate repo auctions are not attracting higher bids due to the availability of cheaper funds in the money market. The overnight variable rate repo auction Thursday is likely to get bids worth INR 185 billion, sharply lower than the notified amount of INR 1 trillion, according to an Informist poll. "Liquidity surplus will be more than INR 1 trillion by the end of April on the back of month-end government spending," a dealer at a private bank said.  (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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