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Informist, Wednesday, May 14, 2025

By Cassandra Carvalho

MUMBAI – The one-day inter-bank call money rate ended below the Reserve Bank of India's repo rate of 6.00% Wednesday. The triparty repo rate also ended below the repo rate.

The one-day call money rate closed at 5.85% Wednesday and the weighted average rate was 5.84%. The call rate moved in the range of 4.90-5.90%. Trade volume for the one-day call was INR 195.57 billion, up from INR 160.43 billion on Tuesday. Total money market volume, including tri-party repos, was INR 5.72 trillion Wednesday, down from INR 5.87 trillion Tuesday. 

Mutual funds were lenders in the triparty repo market, while commercial banks were largely lenders in the call money market, dealers said. Smaller scheduled commercial banks were borrowing in the call money market, dealers said. 

Both the call money and triparty repo rates were below 6.00% during the day due to comfortable liquidity in the banking system. On Tuesday, the RBI had net absorbed INR 1.54 trillion from the banking system, slightly lower than INR 1.67 trillion on Monday. Traders expect rates to move slightly higher Thursday and Friday because of the reporting Friday.

Most traders do not expect the RBI to announce the fortnightly 14-day variable rate repo auction Friday due to comfortable liquidity in the banking system. However, some dealers said the auction could be held as banks would want funds ahead of the outflows for the goods and services tax payment to the government, which is due next week. Dealers estimate the tax outflow will be between INR 1.5 trillion and INR 1.7 trillion. 

Volumes in the call money market have been persistently high this week. Dealers said this was likely due to India and Pakistan ending hostilities. Some dealers said that the central bank has been pushing for deeper volumes in the call money market, which is why volumes have been high recently.

"The high volumes are because of a push from the regulator," a dealer at a state-owned bank said. "Banks were fussy to lend, they would not check the rating (of the borrower) and were selective in lending. RBI has asked to change that."  

Traders now await the central bank's surplus transfer to the government for 2024-25 (Apr-Mar). They expect a transfer of around INR 2.50 trillion-INR 3.50 trillion, to be transferred to the government either this week or the next. However, dealers don't see a direct impact on money market rates after the transfer. After the transfer, government spending is likely to increase only in the next two or three months, after which the transfer will reflect in the banking system liquidity, dealers said. However, if government borrowing for FY26 is cut down after the transfer, demand from primary dealerships may likely increase in the call money market, for their gilt investments. 

Mutual funds were lenders in the triparty repo market Tuesday, dealers said. Traders said insurance companies were active in the triparty repo market and Clearcorp Repo Order Matching System.  

"As per their requirements, insurers will benefit either way," a dealer at another state-owned bank said. "It's better to lend in CROMS (Clearcorp Repo Order Matching System) at higher rates and borrow in TREPS at cheaper rates."

No significant outflows were due Wednesday, dealers said. The settlement of the RBI's operations in the foreign exchange spot market Friday could have happened Wednesday, but the quantum would've been nominal, some dealers said. Traders expect the banking system liquidity to remain at its current level Thursday. 

OUTLOOK

* On Thursday, the one-day call rate may open below the RBI's repo rate due to comfortable liquidity. 

* During the day, the call rate is seen at 5.50-5.95% and the tri-party repo rate at 5.50-5.85%. 

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

CALL RATE

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

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

5.45%-–Tuesday'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; VRR to see muted demand

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. The one-day call money rate opened at 5.90% Wednesday, for the fifth straight day, against 5.45%, the close for one-day loans on Tuesday. The weighted average rate was the same.

The triparty repo rate opened at 5.70%. Rates in the call money market are expected to be in the range of 5.70-5.95% during the day, and those in the triparty repo market are seen at 5.70-5.80%.

On Tuesday, the RBI had net absorbed INR 1.54 trillion from the banking system, slightly lower than INR 1.67 trillion on Monday. The weighted average money market rate--which is an average of call, triparty repo, and repo rate--was 5.58%, 42 basis points below the repo rate. 

"Repo (CROMS) is at 5.85%, TREPS is at 5.73%, because there's good liquidity surplus. So PDs would prefer to borrow from here rather than from VRR," a trader at a primary dealership said. "So we might see a lower subscription of around INR 3-4 thousand crores (INR 30 billion-INR 40 billion) at the VRR today (Wednesday), because there's around a 20 basis point fall in money market rates." The RBI will hold an overnight variable rate repo auction for INR 250 billion from 1000-1030 IST. Subscription is expected to be around INR 50 billion. 

Insurance companies and mutual funds were lenders in the triparty repo market, along with banks, which kept volumes on the higher end. Rates on the Clearcorp Repo Order Matching System fell to as low as 0.30% on the benchmark 10-year 6.79%, 2034 gilt. This was due to insurers lending their long-term gilts in the market, dealers said. 

No significant inflows or outflows are expected Wednesday, dealers said. The settlement of the RBI's operations in the foreign exchange spot market could be there, some dealers said. Payments for state bonds for INR 115 billion are due Wednesday.  End

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

Edited by Akul Nishant Akhoury 

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