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Informist, Tuesday, May 6, 2025

By Christina Titus

MUMBAI – The inter-bank call money rate for one-day loans closed Tuesday below the Reserve Bank of India's repo rate of 6.0%. The volume continued to be on the higher side for the second consecutive day, with primary dealers and small finance banks on the borrowing side, dealers said.  

"Primary dealers were active in the call money market today (Tuesday)," a dealer at a private sector bank said. "They (primary dealers) had some fund requirement due to some settlements in the day." Dealers are of the view that small finance banks are likely facing a deficit of funds. 

The one-day call money rate closed at 5.85% Tuesday, with the weighted average rate at 5.84%. The call rate moved in the range of 4.95-5.95%. Trade volume for one-day call was INR 187.82 billion, down from INR 201.21 billion Monday. Total money market volume, including tri-party repos, was INR 6.10 trillion Tuesday.

"The money market rates tend to hover around the current level in the near term due to ample systemic liquidity," a dealer at a small-sized private sector bank said. "If there is a severe escalation of tensions between Indian and Pakistan, we may see an impact on the rates." 

Monday, the RBI had net absorbed INR 1.21 trillion from the banking system, down from INR 1.38 trillion on Sunday. The cash parked by banks at the RBI's Standing Deposit Facility was largely unchanged at INR 1.63 trillion from Sunday. Liquidity surplus will see a slight dip in the next two days on account of outflows of excise duty, dealers said. They estimated outflows will range from INR 450 billion to INR 700 billion. 

Tuesday, the daily variable rate repo auction received bids of INR 64.28 billion, far lower than the notified amount of INR 250 billion. Despite the low demand at the daily variable rate repo auction, market participants believe the RBI will continue with the auction. "If RBI discontinues VRR auction now, there is a possibility of a fund crunch for some lenders or other participants," the private sector bank dealer said.

In addition, dealers expect the RBI to come up with more bond purchases under its open market operations auctions to maintain consistent liquidity. This is in addition to INR 1.25 trillion of gilts, the RBI has announced to buy in May. During the day, the RBI bought gilts worth INR 500 billion through the first of four auctions in May. 

OUTLOOK

* Wednesday, 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 5.50-5.95% and the tri-party repo rate at 5.50-5.90%.

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

CALL RATE

5.85%-–Tuesday close for one-day loans

5.85%--Tuesday open for one-day loans

5.75%-–Monday close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Opens below repo rate; liquidity surplus on downward trend

MUMBAI – The inter-bank call money rate opened below the Reserve Bank of India's repo rate of 6.00%. "There was some demand in early trade. As a result, call rate rose to 5.95 level," a dealer at a state-owned bank said. "However, the rate will hover around to 5.80 level during the day." According to some dealers, primary dealers were seen actively borrowing in early trade. 

The one-day call money rate opened at 5.85% Tuesday and the weighted average rate was 5.90%. On Monday, the RBI had net absorbed INR 1.21 trillion from the banking system, down from INR 1.38 trillion on Sunday. The slight dip in the liquidity surplus is due to outflows on account of the gilt auction held Friday, which was for INR 360 billion, dealers said. The cash parked by banks at the RBI's Standing Deposit Facility was largely unchanged at INR 1.63 trillion from Sunday. "There is lot of liquidity in the system and it is managed properly as there is no requirement currently," a dealer at at private sector bank said. 

"Though liquidity is not a concern right now, the challenge of reaching RBI's target of INR 2 trillion surplus is due to higher than expected tax outflows," the private sector bank dealer said. "The delayed government month-end spending along with it (tax outflows) added to the scenario. So, the mismatch between the outflows and inflows is deferring liquidity surplus to be at INR 2 trillion level."

The RBI's daily variable rate repo auction Tuesday is expected to attract low demand, with borrowers likely to bid for just INR 65 billion, much lower than the notified amount of INR 250 billion, according to an Informist poll.  (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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