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Informist, Thursday, May 15, 2025

By Christina Titus 

MUMBAI – The inter-bank call money market rate for one-day loans closed below the Reserve Bank of India's Standing Deposit Facility rate of 5.75% on Thursday. "Demand was normal today (Thursday) as there were no major requirements," a dealer at a primary dealership said. "There might be some demand tomorrow (Friday) due to reporting Friday requirements." Primary dealers and small finance banks were the major borrowers, while co-operative banks on the lending side, along with public sector banks, according to dealers. 

The one-day call money rate closed at 5.50% on Thursday and the weighted average rate was 5.83%. The triparty repo rate, where mutual funds are major lenders, closed at 5.78%. Trade volume in the overnight call market was INR 167.81 billion, down from INR 195.57 billion Wednesday. Total money market volume, including tri-party repos, was INR 5.99 trillion, up from INR 5.72 trillion Wednesday. 

"Rates (weighted average call rate) will hover around the same level in coming days," a dealer at a state-owned bank said. "If the RBI releases the dividend, then the rates may go down slightly to the 5.80% level." Thursday, Informist reported, citing finance ministry officials, that the RBI is likely to meet on May 23 to discuss and approve the transfer of surplus to the government. Market participants estimate the RBI's surplus to range from INR 2.5 trillion to INR 3.5 trillion for 2024-25 (Apr-Mar), higher than INR 2.11 trillion in the previous year. 

On Wednesday, the RBI had net absorbed INR 1.84 trillion from the banking system, higher than INR 1.54 trillion Tuesday. Banks had parked INR 2.23 trillion at the RBI's Standing Deposit Facility, up from INR 1.94 trillion Tuesday. Along with the RBI's surplus transfer, the systemic liquidity will improve further with the help of consistent measures undertaken by the regulator, such as daily variable rate repo auctions and open market operation auctions, dealers said. 

Thursday, RBI conducted its third tranche of bond purchases through open market operations in May. The central bank received offers worth INR 711.49 billion, much higher than the notified amount of INR 250 billion. So far in the month, the regulator has injected INR 1 trillion into the banking system through OMO purchases and is set to conduct one more OMO auction worth INR 250 billion on Monday.  

However, demand in the overnight variable rate repo auctions continues to be weak and remains around 20% of the notified amount. Thursday, the auction received bids worth INR 51.98 billion, far lower than the notified quantum of INR 250 billion. Traders remained divided in their opinion on whether the central bank would continue with the 14-day variable rate repo auctions. RBI had conducted 14-day variable rate repo auction on May 2, where it received bids worth INR 1.49 billion, sharply down from the notified amount of INR 250 billion. Prior to this, the central bank had conducted the 14-day variable rate repo auction on Mar. 7. 

"There is enough surplus but now that they have begun the 14-day VRR, it looks like they will continue with it," a dealer at another state-owned bank said. "The daily VRRs are not receiving that much demand also."  

OUTLOOK

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

* During the day, the call rate is seen at 5.50-5.90% and the tri-party repo rate at 5.50-5.75%. 

CALL RATE

5.50%-–Thursday close for one-day loans

5.90%--Thursday open for one-day loans

5.85%-–Wednesday close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate; demand seen dn as most reserve requirements met

MUMBAI – The inter-bank call money market rate opened below the Reserve Bank of India's repo rate of 6.0% on Thursday on account of ample liquidity in the system, dealers said. Since most of the fortnight cash reserve requirements are met already, dealers do not expect additional demand during the day. 

The one-day call money rate opened at 5.90% Thursday and the weighted average rate was also the same. The triparty repo rate, where mutual funds are major lenders, opened at 5.71%. Dealers expect the call rate to hover around 5.80-5.90% Thursday and tri-party repo rate at 5.70% level. Mutual funds will likely on be on the lending side in tri-party repos market due to high cash balances with them, dealers said. 

On Wednesday, the RBI had net absorbed INR 1.84 trillion from the banking system, higher than INR 1.54 trillion Tuesday. Banks had parked INR 2.23 trillion at the RBI's Standing Deposit Facility, up from INR 1.94 trillion Tuesday. "Most banks have complied with cash reserve requirements and they have parked the excess funds at SDF (Standing Deposit Facility)," a dealer at a state-owned bank said.  

"Rates are on the lower side in the second half of the day. So, some banks are trying to take advantage of arbitrage between money market and SDF," a private sector bank dealer said. "This is the reason for high balances at SDF." 

Dealers see liquidity surplus improving further, owing to the RBI's surplus transfer to the government and other liquidity measures. "I expect liquidity surplus to cross INR 2 trillion before RBI's dividend," the dealer said. Dealers estimate the RBI surplus to be around INR 2.5 trillion-INR 3.0 trillion for 2024-25 (Apr-Mar), which will likely be released this week or next week.   

Demand at overnight variable rate repo auction is expected to be weak, with major participation from primary dealers, market participants said. Subscription is expected to be around INR 50 billion, lower than the notified amount of INR 250 billion, according to an Informist poll. Thursday, RBI is also scheduled to conduct bonds purchases worth INR 250 billlion at an auction under its open market operations.  (Christina Titus) 

End

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

Edited by Deepshikha Bhardwaj

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