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Informist, Monday, May 5, 2025

By Christina Titus

MUMBAI – The inter-bank call money rate for one-day loans closed Monday at the Reserve Bank of India's Standing Deposit Facility rate of 5.75%. The weighted average call rate was 5.89%. The call money market was active due to demand for funds, which was evident from the volume, dealers said. 

The call rate moved in the range of 4.95-6.00%. Trade volume for one-day call was INR 201.21 billion, up from INR 18.80 billion Saturday and from INR 148.15 billion Friday. The trade volumes are usually low on Saturdays. Total money market volume, including tri-party repos, was INR 6.15 trillion Monday.

"Primary dealers and small finance banks were majorly on the borrowing side today," a dealer at a small-sized private bank said. "Though overall banking system is in surplus, there might be requirements or fund deficit on an individual basis." 

The RBI net absorbed INR 1.38 trillion from the banking system Sunday, marginally up from INR 1.37 trillion Saturday. The cash parked by banks at the RBI's Standing Deposit Facility rose to INR 1.62 trillion Sunday, up from INR 1.61 trillion Saturday. Dealers expect liquidity to improve further with the inflows from RBI's bond purchases through auctions under its open market operations.   

"Some participants are likely to have borrowed funds to purchase government securities today because prices can rise tomorrow (Tuesday) after OMO (open market operations) auction and then they can sell bonds at profit," a dealer at a state-owned bank said. RBI is scheluded to conduct bond purchases of INR 500 billion via open market operations auction Tuesday. This is the first tranche of bond purchases worth INR 1.25 trillion scheduled in May.

RBI's daily variable rate repo auctions continue to attract few bids due to availability of cheaper funds in the money market, dealers said. Monday, the daily variable rate repo auction received bids of INR 56.46 billion, much lower than the notified amount of INR 250 billion. However, market participants believe the RBI will continue with these auctions till the next Monetary Policy Committee meeting despite low bids.

OUTLOOK

* Tuesday, the one-day call rate may open below the RBI's repo rate on comfortable liquidity.

* 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 an overnight variable rate repo auction for INR 250 billion at 1000-1030 IST.

CALL RATE

5.75%-–Monday close for one-day loans

5.95%--Monday open for one-day loans

5.60%--Saturday close for two-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo on ample liquidity; banks park INR 1.92 tln with RBI

MUMBAI – The inter-bank call money rate opened below the Reserve Bank of India's repo rate of 6.00% due to comfortable liquidity in the system, dealers said. "I expect money market rates to be around 5.50% level as there are no significant outflows this week," a dealer at a private sector bank said. "There is ample liquidity in the system, which will further improve with the inflows from RBI's bond purchases via open market operations. I think liquidity surplus would reach INR 2.50 trillion this week."  

The one-day call money rate opened at 5.95% on Monday and the weighted average rate was 5.94%. On Friday, the RBI had net absorbed from the banking system INR 1.58 trillion, up from INR 1.25 trillion Thursday. The cash parked by banks at the RBI's Standing Deposit Facility rose to INR 1.92 trillion on Friday from INR 1.82 trillion on Thursday. The increase in liquidity surplus is due to inflows from government's month-end spending, dealers said. 

"This time, (government) month-end spending was heavier than usual. I think it was somewhere around INR 1.5 trillion to INR 2 trillion," a dealer at another state-owned bank said. "If you check banks would have maintained a higher SDF balance. It would be more clear in the recent data."

Demand at the overnight variable rate repo auction Monday is expected to be low, with borrowers expected to bid for just INR 50 billion, far lower than the notified amount of INR 250 billion, according to an Informist poll. Dealers are of the view that it does not make sense to borrow from variable rate repo auction when rates are low in money market. 

However, dealers believe the RBI will continue with overnight variable rate repo auctions till the next Monetary Policy Committee meeting. "There will not be any liquidity shortage till next MPC (Monetary Policy Committee) due to RBI's consistent liquidity measures," a dealer at another state-owned bank said.  (Christina Titus)

End

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

Edited by Rajeev Pai

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