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Informist, Friday, May 9, 2025

By Christina Titus 

MUMBAI – The call money market rate ended below the Reserve Bank of India's repo rate Friday due to ample liquidity in the banking system, dealers said. Though the call and tri-party repo rates rose to 6% during the day, they cooled off in the second half. 

"The rates went high mainly due to four-day borrowing and there was some demand in the market today," a dealer at a private sector bank said. RBI-administered money markets will be shut on Monday for Buddha Purnima. "A tiny part of demand can be attributed to the heightened tensions between India and Pakistan, as lenders will try to keep excess reserves, to be on the safer side, ahead of the long weekend."

The four-day call money rate closed at 5.85% Friday and the weighted average rate was at 5.84%. The call rate moved in the range of 4.90-6.00%. Trade volume for the four-day call was INR 148.22 billion, down from INR 152.21 billion Thursday. Total money market volume, including tri-party repos, was INR 6.05 trillion Friday. 

Dealers said the cross-border tensions will not have a major impact on the money market due to ample liquidity in the system. Liquidity will improve further with open market operations scheduled in May, along with the RBI dividend, which is expected to be released later in the month, dealers said. The central bank conducted its second tranche of bond purchases for the month on Friday. The open market purchases of gilts through auctions have totalled INR 750 billion so far in May, with another two auctions worth INR 500 billion remaining in the month. 

On Thursday, the RBI net absorbed INR 1.33 trillion from the banking system, slightly lower than INR 1.42 trillion on Wednesday. Banks had parked INR 1.77 trillion at the RBI's Standing Deposit Facility, down from INR 1.83 trillion on Wednesday. 

Primary dealers were on the borrowing side Friday, according to dealers. "Seeing the high underwriting fee today (Friday), the primary dealers might have started borrowing funds in the call market in expectation of devolvement," a dealer at a state-owned bank said. The fee demanded by primary dealers to underwrite a bond at the government's weekly debt sale Friday was the highest in four years, at 30 paise for 6.90%, 2065 gilt. The fee for 6.92%, 2039 gilt was 14 paise. Primary dealers expected devolvement at the auction due to a lack of demand for fresh supply at a time when tensions on the border are high, but the auction sailed through without any devolvement.

OUTLOOK

* On Tuesday, the one-day call rate may open below the RBI's repo rate on comfortable liquidity. RBI-administered markets are shut on 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%. 

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

CALL RATE

5.85%-–Friday's close for four-day loans

5.90%--Friday's open for four-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call:Below RBI repo rate on ample liquidity, absence of major outflows

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 6.00% due to comfortable liquidity and absence of significant outflows, dealers said. The ongoing tensions between India and Pakistan is unlikely to have an impact on money market rates, they added. "Geopolitical tensions between India and Pakistan will not have a significant impact on overnight rates," a dealer at a private bank said. "The rates are under control because of comfortable liquidity and daily VRR (variable rate repo) auctions conducted by RBI." 

The four-day call money rate opened at 5.90% Friday. 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 at 5.75-5.90%. Primary dealerships are expected to be on the borrowing side in money markets, while most banks will be on the lending side. Mutual funds are expected to be on the lending side. However, a few market participants expect them to be low on cash due to less inflows from maturing investments, dealers said. 

Despite heavy borrowing from primary dealerships in the money market and escalation in the geopolitical situation between India and Pakistan, the rates are expected to remain below the RBI's repo rate due to infusion of transient liquidity from the central bank, dealers said. However, the market may keep a close watch on any developments on tensions between India and Pakistan, dealers said. Late Thursday, media companies reported overnight shelling along the Line of Control and international border between the two countries, and a few media reports indicated India captured a Pakistani pilot after a fighter jet was shot down. However, there was no official confirmation from either side.

At the four-day variable rate repo auction, the central banks got bids worth INR 74.17 billion against the notified amount of INR 250 billion which was fully accepted. "Banks would not go for VRR auction because we have enough securties which enable us to borrow (in) TREPS (triparty repo market)," a dealer at a state-owned bank said. "The participation will be mostly driven by PDs (primary dealerships)."

On the liquidity side, market participants see the surplus 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 on account of goods and services tax payments, dealers said. Outflows for the same will likely start from the third week of the month, dealers said. On Thursday, the RBI had net absorbed INR 1.33 trillion from the banking system, slightly lower than INR 1.42 trillion on Wednesday.   (Siddhi Chauhan) 

End

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

Edited by Saji George Titus

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