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Informist, Tuesday, Apr. 29, 2025

By Christina Titus and Vidhushi RajPurohit

MUMBAI – The inter-bank call money rate closed at the Reserve Bank of India's repo rate of 6.0% Tuesday, the first time since the policy rate cut on Apr. 9. During the day, the call rate had risen to a peak of 6.10%. Dealers attributed the higher rates to delayed month-end spending by the government and fears of escalation in cross-border tensions between India and Pakistan. During the day, the Pakistani army claimed it shot down an Indian spy drone across the Line of Control in Pakistan-occupied Kashmir, which caused volatility in both the government bond and the foreign exchange markets. The call money market also saw a spurt in demand around the same time.

The one-day call money rate ended at 6.00%, up 13 basis points from 5.87% Monday, and the weighted average rate for the day was 5.90%. The tri-party repo rate also rose to 6.20% during the day and settled at 5.90%.

The rates in triparty repo market were higher than call money market as most banks reached their counterparty limits in the call money in the early trade rush, a dealer at a state-owned bank said. Mutual funds, which are the major lenders in the triparty repo market, also faced redemption pressure which led them to charge higher rates, according to some dealers. Trade volume for the one-day loans was INR 167.90 billion Tuesday, up from INR 157.20 billion Monday. Total money market volume, including tri-party repos, was INR 6.13 trillion Tuesday. 

"We were expecting (month-end) inflows to start but it looks like there is some delay and that's why rates were higher," the state-owned bank dealer said. The RBI net absorbed INR 903.39 billion from the banking system on Monday, down from INR 1.09 trillion Sunday. Banks had parked INR 1.33 trillion at the RBI's Standing Deposit Facility on Monday, slightly higher than INR 1.26 trillion on Sunday. 

There were comparativley more trades for three-day loans Tuesday, with a volume of INR 12.65 billion. "Participants were securing money for month-end and reporting Friday requirements because we do not know what would be the rates tomorrow (Wednesday), a dealer at another state-owned bank said. The current reporting fortnight ends Friday and Indian financial markets are shut Thursday on account of Labour Day.

OUTLOOK

* On Wednesday, the two-day call rate may open near the repo rate on some demand in early trade, dealers said.

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

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

CALL RATE

6.00%--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: Below repo rate; RBI INR 1.25-tln OMO notice to boost liquidity

MUMBAI – The inter-bank call money rate opened near the Reserve Bank of India's repo rate of 6.0% Tuesday. "Rate (call money rate) will be range-bound and hover around 5.65-5.85% on comfortable liquidity in the system," a dealer at a public sector bank said. "RBI's open market operations auctions and variable rate repo auctions will help the banking system to remain in sufficient liquidity surplus." In addition, inflows from the government's month-end spending have started flowing into the system; these are estimated to be around INR 2 trillion. 

Sentiment was boosted by the RBI's announcement late on Monday that it would buy government securities worth INR 1.25 trillion through four auctions under its open market operations in May. "This is higher than market expectation of INR 500 billion – INR 800 billion," a dealer at a state-owned bank said. "RBI has come up with a such large amount to ensure systemic liquidity is above 1% of NDTL (net demand and time liabilities). Currently, the liquidity surplus is around 0.5%." 

The one-day call money rate opened at 5.95% and the weighted average rate was 5.95%. The RBI net absorbed INR 903.39 billion from the banking system on Monday, down from INR 1.09 trillion Sunday. The fall in liquidity surplus is due to the payment of gilts auction worth INR 270 billion Monday, according to dealers. Banks had parked INR 1.33 trillion at the RBI's Standing Deposit Facility on Monday, slightly higher than INR 1.26 trillion on Sunday.

RBI announced it would conduct overnight variable rate repo auction of INR 750 billion Tuesday, which is expected to get bids of INR 100 billion, an Informist poll showed. Variable rate repo auctions are getting a low response from the market participants due to lack of fund requirement and low rates in the money market. 

"Given the large negative forward book, RBI is likely to rely solely on OMO (open market operations) purchases to infuse liquidity," IDFC FIRST Bank said in a note late Monday. "We estimate that RBI will need to infuse INR 4 trillion in 2025-26 (Apr-Mar), to reach this level of system liquidity surplus. Hence, we expect further OMO purchases of INR 1.6 trillion in the remainder of FY26." It also said RBI aims at maintaining a liquidity surplus higher than 1% of net demand and time liabilities to reduce credit-deposit ratio, which is currently high at 79%.  (Christina Titus)  

End

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

Edited by Akul Nishant Akhoury

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