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Informist, Friday, May 23, 2025

By Christina Titus

MUMBAI – The inter-bank call money rate ended at 5.50% Friday, below the Reserve Bank of India's standing deposit facility rate of 5.75%. On completion of a major portion of goods and services tax payments, the weighted average call money rate ended steady at 5.85%. After market hours, the RBI announced a surplus transfer of INR 2.69 trillion to the government, below the market's expectation of around INR 3.00 trillion. Additionally, the central bank has raised the contingent risk buffer to 7.5% from 6.5% the previous year, leading to a lower-than-expected surplus, according to some dealers.

The triparty repo rate, where mutual funds are major lenders, closed at 5.60%. The weighted average triparty repo rate was 5.77%, down from 5.79% Thursday. The trade volume in the three-day call market fell to INR 178.72 billion from INR 197.06 billion Thursday. Total money market volume was INR 6.06 trillion. Primary dealers and payments banks were likely to have been major borrowers in the call market, whereas large public-sector banks were likely to have been on the lending side, dealers said.

Thursday, the RBI had net absorbed INR 991.23 billion from the banking system, the lowest since Apr. 29, when it was INR 806.44 billion. Banks had parked INR 1.39 trillion with the RBI at the standing deposit facility, slightly lower from INR 1.71 trillion Wednesday, RBI data showed.

"Money market rates may go up slightly as liquidity is getting reduced every day," a dealer at a state-owned bank said. "The RBI's dividend was also below the expectation."

Some dealers, however, see the overnight money market rates staying at the current level on completion of the major part of tax outflows by Friday. "Rates will remain at this level going ahead," a dealer at a private-sector bank said. "It will cool off once the month-end spending starts and will improve the liquidity thereafter." 

Market participants are divided on a further fall in systemic liquidity. Some participants expect liquidity to drop slightly from current levels, while others hope it will remain steady. However, they do not see the decline in systemic liquidity as a matter of concern now. The liquidity surplus will improve on the back of month-end spending and the RBI's surplus transfer to the government, dealers said.

OUTLOOK

* On Monday, the one-day call money rate may open below the RBI's repo rate of 6.00% on lack of significant outflows.

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

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

CALL RATE

5.50%--Friday close for three-day loans

5.90%--Friday open for three-day loans

5.45%--Thursday close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below RBI's repo rate; traders eye RBI's surplus transfer to govt

MUMBAI – The inter-bank call money rate was lower than the Reserve Bank of India's repo rate of 6.00% on Friday as the majority of outflows for Goods and Services Tax payments were out of the way, dealers said. Weighted average rates remained high on reduced systemic liquidity. However, rates are not expected to rise above the repo rate as the overall liquidity in the system remains comfortable, they said. 

The three-day call rate opened at 5.90% against the 5.45% at close for one-day loans on Thursday. The weighted average call rate was at 5.90% at 0930 IST unchanged from the same time on Thursday. Rates in the larger triparty repo market, where mutual funds are major lenders, opened at SDF and rose to 5.80% at 0930 IST, against Thursday's close of 5.67%. The weighted average triparty repo rate was at 5.79% unchanged from Thursday. 

"Rates should be mostly around these levels today (Friday), as most of the GST (Goods and Services Tax) (payments) are done and only some minor ones are remaining," a dealer at a private sector bank said. Goods and Services Tax outflows are expected to be around INR 1.50 trillion to INR 2.00 trillion, against a record-high of INR 2.37 billion in April, dealers said. 

On Thursday, the RBI had net absorbed INR 991.23 billion from the banking system, lowest since Apr. 29 when it was INR 806.44 billion. Banks had parked INR 1.39 trillion with the RBI at the standing deposit facility, slightly down from INR 1.71 trillion Wednesday, RBI data showed. 

"Liquidity is expected to improve from here by the end of May with the government spending and the RBI's dividend, which could come in a single tranche," the dealer at the private sector bank said.

The RBI's central board of directors is likely to meet Friday to discuss and approve the transfer of surplus to the Centre, Informist had reported earlier, citing two finance ministry officials. Some said that the announcement could come within market hours. Most dealers said the outcome may not impact money market rates much as they expect the liquidity to be impacted only by end of next month. Traders widely expect a surplus transfer of around INR 3 trillion. 

At the three-day variable rate repo auction, dealers expect around INR 50 billion to be subscribed by traders, against INR 43.48 billion bids accepted by the central bank at Thursday's auction. A bulk of the auction is expected to be bid by primary dealers, market participants said.  (Srijita Bose)  

End

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

Edited by Nishant Maher

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