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Informist, Wednesday, May 21, 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% on ample liquidity in the banking system. As expected by the dealers, the triparty repo rate was slightly higher Wednesday on account of demand for funds amid goods and services tax outflows. However, the demand was usual in the call money market, dealers said.

The one-day call money rate closed at 5.40% Wednesday, while the weighted average rate was at 5.80%, up from 5.79% Tuesday. The triparty repo rate, where mutual funds are major lenders, closed at 5.67%. The weighted average triparty repo rate was 5.73%, up from 5.66% Tuesday. 

Trade volume in the overnight call market was INR 179.15 billion, up from INR 167.34 billion Tuesday. Trade volume in the tri-party repo market was INR 3.91 trillion, up from INR 3.78 trillion Tuesday. Total money market volume, including triparty repos, was INR 5.86 trillion Wednesday. 

"Outflows for GST (goods and services tax) started yesterday (Tuesday) and today (Wednesday) the rates went up slightly for the leftover payments," a dealer at a private sector bank said. "But liquidity is good, so no pressure as such." According to another dealer from a primary dealership, the call rate may open slightly higher Thursday due to the tax outflows. 

On Tuesday, the RBI had net absorbed INR 1.85 trillion from the banking system, down from INR 1.94 trillion Monday. Banks had parked INR 2.25 trillion with the RBI at the Standing Deposit Facility, slightly down from INR 2.34 trillion Monday. The liquidity surplus has fallen as outflows for payments of goods and services tax for the month kicked in, dealers said. 

Market participants said RBI's data on money market operations for Thursday will draw a clear picture regarding the liquidity and the outflows. "After the completion of outflows, I expect the liquidity surplus to decline to around the INR 500 billion level," a dealer at a state-owned bank said. 

According to market participants, the RBI likely met with some bankers Wednesday to discuss the liquidity management framework. At the meeting, the lenders likely recommended expansion of the Liquidity Adjustment Facility corridor to 50 basis points on each side, from the current 25 bps. Other discussions likely included no more bond purchases via open market operation auctions and shifting the operating target of monetary policy from weighted average call rate to Secured Overnight Rupee Rate, or SORR, which the RBI introduced in the December policy meeting, the dealers said.

The daily variable rate repo auction continues to receive weak response from the market, with the auction on Wednesday receiving bids worth INR 43.48 billion, far below the notified amount of INR 250 billion. Primary dealers were likely the major participants in the auction, according to dealers. 

OUTLOOK

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

* During the day, 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%--Wednesday close for one-day loans

5.85%--Wednesday open for one-day loans

5.45%--Tuesday close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate as liquidity comfortable; triparty repo seen up

MUMBAI – The inter-bank call money rate was below the Reserve Bank of India's repo rate of 6.0% on Wednesday due to comfortable liquidity in the banking system, dealers said. Market participants expect a slight increase in the demand for funds Wednesday on account of payments for goods and services tax outflows. However, they do not see any spike in the call money rates due to ample systemic liquidity. "There are enough participants to lend in the overnight market now, which prevents rates from rising," a dealer at a private sector bank said. 

The one-day call money market rate opened at 5.85% Wednesday and the weighted average rate was also the same. The larger triparty repo rate, where mutual funds are major lenders, opened at 5.72%. Dealers see the call rate hover around 5.85%. "There will be a surge in TREPS rate today (Wednesday)," a dealer at a state-owned bank said. "It may go up to 5.80% during the day." 

On Tuesday, the RBI had net absorbed INR 1.85 trillion from the banking system, down from INR 1.94 trillion Monday. Banks had parked INR 2.25 trillion with the RBI at the Standing Deposit Facility, slightly down from INR 2.34 trillion Monday. Dealers attribute the fall in liquidity surplus to outflows on account of GST payment. "There will be much more difference (in liquidity) by tomorrow (Thursday)," the dealer mentioned above said. "The system will be in surplus after the tax outflows. I expect liquidity to move into deficit by the quarter-end after the advance tax outflows." 

Despite the tax outflows, the daily variable rate repo auction on Wednesday will likely see weak demand, dealers said. For the auction, dealers expect bids worth INR 50 billion, much lower than the notified amount of INR 250 billion.  (Christina Titus)  

End

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

Edited by Saji George Titus

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