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Informist, Thursday, May 8, 2025

By Cassandra Carvalho

MUMBAI – The call money market rate ended below the Reserve Bank of India's repo rate as demand for funds eased, and no significant outflows are expected this week, dealers said. The remnants of outflows for excise duty would likely have taken place during the day, they said.

The one-day call money rate closed at 5.85% Thursday, with the weighted average rate at 5.82%. The call rate moved in the range of 4.90-5.90%. The trade volume for one-day call was INR 152.21 billion, slightly down from INR 156.48 billion Wednesday. The total money market volume, including tri-party repos, was INR 6.05 trillion, slightly up from INR 5.97 trillion Wednesday. Meanwhile, the tri-party repo rate moved in a range of 5.60-5.77%, closing at 5.60%.

Total outflows of INR 400 billion-INR 700 billion were expected Wednesday and Thursday for excise duty. Of this, around 20% outflows would likely have taken place during the day, dealers said. 

Some dealers speculated the outflows for excise duty to be a cause of higher-than-usual borrowing at the overnight variable rate repo auction. At the overnight variable rate repo auction for INR 250 billion, the central bank accepted bids worth INR 80.74 billion, which is higher than INR 57.55 billion, the average of bids accepted at rate repo auction held from Monday to Wednesday. The notified quantum for these auction was same. 

Other dealers said this was unlikely since banks would prefer to fund the outflow by borrowing in the call money market at cheaper rates. 

"Small banks that don't have the infrastructure access to e-Kuber lend their excess funds at lower rates rather than keeping it idle, since they don't have a standing deposit facility," a dealer at a state-owned bank said. "Once everyone squares off (their funding requirements), volumes are thin and that's when trades at low rates happen."  

After sorting their borrowing requirements, most banks park their funds in the RBI's standing deposit facility after money markets shut and gain a 5.75% interest on those funds. However, mutual funds and some co-operative banks, who don't have access to the RBI's e-Kuber portal, lend these excess funds at lower rates in the call money and triparty repo markets in the second half of the day, dealers said. At the day's low, the call money rate was 4.90% and the triparty rate was 5.60%. 

Primary dealerships continued to be the largest borrowers in the call money and triparty repo markets, dealers said. They were also likely the largest bidders at the variable rate repo auction Thursday, dealers said. 

"We're borrowing 1,000 crore (INR 10 billion) at the VRR auction every day because we have regulatory constraints (limits) when borrowing in the call money market," a trader at a primary dealership said. 

Some dealers said mutual funds were likely on the lending side in the triparty repo market, since they would've received inflows in liquid and short-term funds amidst uncertainty in equity markets. However, others said inflows into mutual funds were lower than estimated, which led them to borrow in the triparty repo market.  

In the upcoming days, liquidity is expected to remain around the same levels due to the absence of significant outflows, dealers said. The next major outflow, which is expected to drain around INR 1.5 trillion from the banking system, will be goods and services tax, dealers said. The outflows for the same will likely start from the third week of the month, dealers said. 

OUTLOOK

* Friday, the four-day call rate may open below the RBI's repo rate on comfortable liquidity. RBI-administered markets are shut Monday for Buddha Purnima.

* During the day, the call rate is seen at 5.50-5.95% and the tri-party repo rate at 5.50-5.90%. Escalation in tensions between India and Pakistan is unlikely to impact money market rates as long as the surplus in the banking system liquidity remains comfortable, dealers said. 

* RBI will hold a fiur-day variable rate repo auction for INR 250 billion at 1000-1030 IST.

CALL RATE

5.85%-–Thursday's close for one-day loans

5.90%--Thursday's open for one-day loans

5.50%-–Wednesday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below RBI repo; primary dealers, small fin bks likely borrowers

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 banking system, dealers said. Primary dealerships and small finance banks continue to be largely on the borrowing side, as seen this week, dealers said.

The one-day call money rate opened at 5.90% Thursday. The weighted average rate was the same. Rates in the call money market are expected to be in the range of 5.50-5.90% during the day, and those in the triparty repo market are seen 5.60-5.75%.

"We're seeing a flat market today (Thursday), no major outflows are expected," a dealer at a state-owned bank said. "Rates are steady (similar to Wednesday) and right now it's only the PDs (primary dealerships) borrowing."

Outflows on account of excise duty payments have largely been completed Wednesday, and only around 10% of the estimated INR-500-billion quantum is expected Thursday, dealers said. No significant outflows are seen Thursday.

Market participants expect the liquidity to hover near INR 1.5 trillion in the coming days as no significant outflows are lined up for the next week, dealers said. On Wednesday, the RBI had net absorbed INR 1.42 trillion from the banking system, slightly higher than INR 1.37 trillion on Tuesday. Settlement of the central bank's INR-500-billion purchase of gilts through auction under its oepn market operations offset the outflows for tax collected at source, dealers said. 

Cooperative banks are likely lenders in the call money market when rates touch intraday lows, dealers said. The call money rate hit a low of 4.90% Wednesday. 
 

Primary dealerships and small finance banks have borrowed higher-than-usual quantum this week, dealers said, which is why marketwide volumes in money markets have been consecutively high at around INR 6.00 trillion in total. As of 1030 IST, volumes in the call money market were INR 63.51 billion, lower than the volume of INR 71.32 billion at the same time Tuesday, according to data from Clearing Corp. of India. Traders were unable to pinpoint the reason for volumes being on the higher end. Banks' cash reserves with the RBI were INR 9.56 trillion Wednesday, a tad lower than INR 9.61 trillion Tuesday. 

The RBI's daily variable rate repo auction Thursday is expected to attract low demand, with borrowers likely to bid for just 20% of the notified amount of INR 250 billion, according to an Informist poll. Bids at the daily auctions have been in the INR 50 billion-INR 65 billion range this week.

End

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

Edited by Deepshikha Bhardwaj

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