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Informist, Monday, Apr. 28, 2025

By Christina Titus

MUMBAI – The inter-bank call money rate remained below the Reserve Bank of India's repo rate of 6.0% on Monday with systemic liquidity being comfortable and government's month-end spending, market participants said. Dealers estimate the government's total month-end spending to be INR 1.5 trillion to INR 2.0 trillion, which will boost the liquidity surplus further. "On Tuesday, government spending of INR 200 billion to INR 300 billion will flow into the system," a dealer at a state-owned bank said.

The one-day call money rate ended at 5.87% and the weighted average rate was also at the same level. Trade volume for the one-day loans was INR 157.20 billion Monday, up from INR 144.75 billion for three-day loans Friday. Total money market volume, including tri-party repos, was INR 6.07 trillion Monday.

There was some preference for slightly longer-tenure borrowing, for two to 49 days, according to a few dealers. "Issuing CD (certificates of deposit) in April will have a negative impact on the liquidity coverage ratio. Therefore, banks will opt for long-tenure loans from the money market to meet their fund requirements," a dealer at a private bank said.

The RBI net absorbed INR 1.09 trillion from the banking system on Sunday, almost the same as INR 1.08 trillion Saturday. Banks had parked INR 1.26 trillion at the RBI's Standing Deposit Facility on Sunday, marginally up from INR 1.24 trillion Saturday.

"RBI can infuse more liquidity to fulfil the stance chance announced in the previous MPC (Monetary Policy Committee meeting) and for transmission of rate cut," the dealer said. Monday, after market hours, the central bank announced purchases of government securities worth INR 1.25 trillion through open market operations auction, which will be held in four tranches in May. This is above market expectations of around INR 500 billion. So far in April, the RBI has brought gilts worth INR 1 trillion and is scheduled to conduct one more auction Tuesday for INR 200 billion.

"RBI will continue with variable repo rate auctions till next MPC (meeting). Afterwards, whether the RBI will continue or not will depend on the policy rate cut," the dealer said. Currently, the RBI's daily variable repo rate auctions are getting tepid response from market participants due to low rates in money markets. The RBI's overnight variable rate repo auction Monday received bids of INR 49.98 billion, sharply lower than the notified amount of INR 500 billion.

OUTLOOK

* On Tuesday, the one-day call rate may open below the repo rate due to sufficient liquidity and inflows from government's month-end spending, dealers said.

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

* RBI will hold an overnight variable rate repo auction for INR 750 billion at 1000-1030 IST.

CALL RATE

5.87%--Monday close for one-day loans

5.95%--Monday open for one-day loans

5.90%--Friday close for three-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate on ample liquidity, month-end inflows

MUMBAI – The inter-bank call money rate opened below the Reserve Bank of India's repo rate of 6.0% due to comfortable liquidity in the banking system, dealers said. "There will be some demand today (Monday). However, rates will come down later in the day and stay around Standing Deposit Facility rate of 5.75%," a dealer at a private sector bank said. 

The one-day call money rate opened at 5.95% and the weighted average rate was also at the same level. At 0942 IST, one-day call money rate 5.90% and trading volume was INR 42.83 billion. The rate in the tri-party repo market was also lower than repo rate at 5.76%. 

Market participants said cross-border tensions are unlikely to cause panic borrowing during the day. The strife between India and Pakistan escalated Friday following the terror attack at Pahalagam in south Kashmir last week, which led to some panic borrowing during early trade. "We do not see any further panic borrowing as the market has already discounted that," a dealer at a state-owned bank said. "But, if any surprise attack happens, we may see some increse in borrowing."

The RBI net absorbed INR 1.02 trillion from the banking system on Friday, largely unchanged from INR 1.01 trillion Thursday. Banks had parked INR 1.28 trillion at the RBI's Standing Deposit Facility Friday, slightly down from INR 1.47 trillion Thursday. Dealers await RBI to release the recent data on its money market operations to get clarity about current liquidity level. 

"Liquidity surplus is comfortable right now. It will further improve with the government month-end spending and RBI dividend, which we expect it around INR 2 trillion," a dealer at a private sector bank said. Dealers also expect RBI to announce more bond purchases via open market operations auctions for month of May, which will further boost systemic liquidity. So far in April, the RBI has brought gilts amounting to INR 1 trillion and is scheduled to conduct one more auction for INR 200 billion Tuesday.

Demand at the overnight variable rate repo auction Monday is expected to be tepid, with borrowers expected to bid for just INR 100 billion, less than the notified amount of INR 500 billion, according to an Informist poll. Variable rate repo auctions are not able to attract higher bids on cheaper availability of funds in money market.  (Christina Titus)

End

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

Edited by Ashish Shirke

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