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Informist, Monday, May 19, 2025

By Christina Titus 

MUMBAI – The inter-bank call money market rate ended below the Reserve Bank of India's Standing Deposit Facility rate of 5.75% due to ample liquidity in the system, dealers said. The demand was low on Monday, but dealers expect it to pick up from Tuesday due to outflows on account of payments for the goods and services tax.  

The one-day call money rate closed at 5.40% and the weighted average rate was 5.79%. The call rate moved in the range of 4.85-5.90%. The triparty repo rate, where mutual funds are major lenders, closed at 5.61%. Trade volume in the overnight call market was INR 151.36 billion, up from INR 148.71 billion Friday. Total money market volume, including tri-party repos, was INR 5.90 trillion Monday.

"The rates will move slightly up as a result of GST (goods and services tax) outflows," a dealer at a small-sized private sector bank said. "Moreover, the rates will depend on how much liquidity the system has at that moment and the RBI dividend." Dealers estimate the RBI's surplus transfer to the government at a record high of INR 3 trillion for the financial year ended Mar. 31 and outflows on account of goods and services tax to range between INR 1.2 trillion to INR 1.7 trillion. 

On Sunday, the RBI had net absorbed INR 2.12 trillion from the banking system, largely unchanged from Saturday and lower than INR 2.50 trillion Friday. Banks had parked INR 1.76 trillion at the RBI's Standing Deposit Facility, largely unchanged from Saturday and INR 2.69 trillion Friday. The systemic liquidity had crossed INR 2 trillion Thursday after being below that level throughout the month.  

"We expect the liquidity surplus to moderate, driven by GST (goods and services tax) collections, but liquidity conditions will continue to be supported by OMO purchases," Kotak Mahindra Bank said in a note. "However, we expect durable liquidity to surge to INR 6.5 trillion surplus zone towards the end of the week from INR 3.5 trillion in the previous week as the RBI is expected to announce a high dividend in its board meeting expected on May 23." 

RBI purchased bonds worth INR 192.03 billion in open market operations auction Monday as against the notified amount of INR 250 billion. This is the last tranche of bond purchases scheduled for the month. The RBI received offers worth INR 503.69 billion. The variable rate repo auction, on the other hand, continued to get a poor response. The bids at this auction Monday were INR 51.70 billion, far below the notified amount of INR 250 billion. Despite weak demand, the RBI may increase the amount of overnight daily variable rate repo auctions to help manage tax outflows, a dealer at a private sector bank said. 

OUTLOOK

* On Tuesday, the one-day call money rate may open below the RBI's repo rate of 6.00% on ample liquidity.

* During the day, the call rate is seen in a range of 5.60-6.00%, dealers said.

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

CALL RATE

5.40%--Monday close for one-day loans

5.90%--Monday open for one-day loans

5.50%--Saturday close for two-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate; demand low as liquidity ample

MUMBAI – The inter-bank call money market opened below the Reserve Bank of India's repo rate of 6.0% on Monday as liquidity in the banking system is comfortable, dealers said. "Demand will be normal today (Monday) and it will pick up from tomorrow (Tuesday) ahead of outflows on account of goods and services tax," a dealer at a state-owned bank said. "I expect outflows to be around INR 2 trillion in May." The outflows will start from Wednesday, dealers said.

Some dealers expect the tax outflows to range from INR 1.2 trillion to INR 1.7 trillion. In April, goods and services tax collections were INR 2.37 trillion, the highest since the introduction of the indirect tax in 2017.

The one-day call money rate opened at 5.90% and the weighted average rate at 5.86%. The triparty repo rate, where mutual funds are major lenders, opened at 5.70%. Dealers see call rates hover around 5.85% during the day and see triparty repo rate below RBI's Standing Deposit Facility.

Primary dealers and small-sized state-owned banks are likely on the borrowing side in the call money market while large-sized public sector banks and co-operative banks are on the lending side. In triparty repo market, mutual fund will be the major lenders as they have large cash balances with them currently, dealers said.

On Friday, the RBI had net absorbed INR 2.50 trillion from the banking system, up from INR 2.23 trillion Thursday. Banks had parked INR 2.69 trillion at the Standing Deposit Facility, up slightly from INR 2.63 trillion Thursday.

On Thursday and Friday, systemic liquidity was above INR 2 trillion, according to RBI data. Market participants expect liquidity to rise further with RBI's consistent measures and its surplus transfer to the government. The RBI will conduct bond purchases worth INR 250 billion Monday, which is expected to be fully subscribed. However, variable rate repo auctions continue to get less bids, with dealers expecting bids at the operation on Monday worth INR 55 billion, sharply below the notified amount of INR 250 billion.

"The demand at the auction would be just miniscule because the liquidity is sufficient," a dealer at a state-owned bank. "Whatever activity we will see in the money market would be because of arbitrage between forex (foreign exchange) and TREPS (triparty repo market). The spread between both markets is around 24-30 bps (basis points) which is not that lucrative. But since we have funds we would go (lend) for it."  (Christina Titus)

End

Edited by Saji George Titus

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