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Informist, Friday, Apr. 25, 2025

By Christina Titus

MUMBAI – The inter-bank call money rate on Friday closed 40 basis points higher on demand for funds from banks, but below the repo rate of 6.0%. "There was panic borrowing in the early trade, reflecting the stress in the bond and forex markets due to escalation of cross-border tensions," a dealer at a state-owned bank said. "Demand has settled in the second-half of the day and rates cooled-off." The panic borrowing was triggered by banks' need to create a buffer for the weekend to be prepared for any potential escalation in cross-border tensions between India and Pakistan, dealers said. 

The Indian rupee and prices of government securities fell on rising tensions between India and Pakistan. The 10-year benchmark gilt's price fell by over 30 paise and the rupee was down 19 paise against the dollar Friday. However, the dealer said he does not expect cross-border tensions will have a major impact further.  

The three-day call money rate ended at 5.90% and the weighted average rate was 5.86%. Trade volume for the three-day loans was INR 144.75 billion Friday, up from INR 127.10 billion for one-day loans Thursday. Total volume, including tri-party repos, was INR 6.14 trillion Friday. The liquidity surplus improved to INR 1 trillion Thursday from INR 786.91 billion on Wednesday.

Dealers expect the liquidity surplus to reach INR 2 trillion by the end of April due to government spending and open market operations auction of INR 200 billion Tuesday. Dealers estimated month-end government spending to be in the range INR 1.5 trillion–INR 2 trillion. Market participants said money market rates will be rangebound due to sufficient liquidity surplus in the banking system. 

The RBI's three-day variable rate repo auction Friday received bids of INR 69.47 billion, much lower than the notified amount of INR 500 billion. The overnight variable rate repo auction will continue to attract low participation unless money market rates go above repo rate, according to dealers. 

OUTLOOK

* Monday, the one-day call rate may open below the repo rate due to sufficient liquidity, dealers said. 

* During the day, the call rate is seen at 5.80-5.90% and the tri-party repo rate at 5.50-6.00%.

* RBI will hold an overnight variable rate repo auction for INR 500 billion at 1000-1030 IST.

CALL RATE

5.90%--Friday close for three-day loans

5.95%--Friday open for three-day loans

5.50%--Thursday close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Near repo rate as liquidity surplus returns to INR 1 tln

MUMBAI – Despite the liquidity surplus returning to INR 1 trillion, the inter-bank call money rate opened near the Reserve Bank of India's repo rate of 6.0% due to demand in early trade. "The banks will cover 80% of their fund requirements in early trade before waiting for the low rates," a dealer at a public sector bank said. "However, rates will cool off in the second half of the day (Friday)."   

The three-day call money rate opened at 5.95% and the weighted average rate was 5.95%. At 0930 IST, volume in the call money market stood at INR 43.77 billion.

The RBI net absorbed INR 1.01 trillion from the banking system on Thursday, higher than INR 786.91 billion on Wednesday. Banks had parked INR 1.47 trillion at the RBI's Standing Deposit Facility on Thursday, up from INR 1.34 trillion Wednesday. The liquidity surplus has returned to above INR 1 trillion after three days. The surplus has fallen due to the monthly outflow on account of payments of goods and services tax.  

"Government spending has started slightly," a dealer at a state-owned bank said. "I think around INR 200 million-INR 300 million has come into the banking system in the form of salary. Liquidity will improve further with the month-end government spending, which is estimated to be in the range INR 1.5 trillion–INR 2 trillion." Some traders were of the view that the RBI would likely announce it will purchase INR 500 billion of bonds through an auction under its open market operations to boost liquidity further.  

The RBI lowered the auctioned amount at its variable rate repo auction on Friday to INR 500 billion after offering to auction INR 1 trillion or more through the week. The regulator had announced such high-ticket variable rate repo auctions to help the banking system manage the tax outflows. These outflows had pushed the liquidity surplus sharply down to INR 382.44 billion on Tuesday from INR 2 trillion on Apr. 17. 

Demand at the three-day variable rate repo auction Friday is expected to be low, with borrowers expected to bid for just INR 100 billion, sharply lower than the notified amount of INR 500 billion, according to an Informist poll. "The VRR tool is useful but when the rates in money market are so low that it makes no sense to for banks to borrow above repo rate," a dealer at a private bank said. "Liquidity has also improved and from next week month-end spending will also start, so surplus will reach INR 2 trillion soon."  (Christina Titus)

End

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

Edited by Subhojit Sarkar

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