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Informist, Monday, May 26, 2025

By Christina Titus

MUMBAI – The inter-bank call money rate ended below the Reserve Bank of India's repo rate of 6.0% Monday. The weighted average overnight money market rates were on the lower side, owing to the return of comfortable liquidity after being under pressure due to payments for goods and services tax, dealers said. 

The one-day call money rate closed at 5.85% Monday, up from Friday's three-day close of 5.50%. The weighted average rate was 5.81%, down from 5.85% Friday. The triparty repo rate, where mutual funds are major lenders, closed at 5.77%. The weighted average triparty repo rate was 5.73%, down from 5.77% Friday. 

Trade volume in the overnight call market was INR 176.76 billion, slightly down from INR 178.72 billion Friday. Total money market volume was INR 5.90 trillion Monday. Small finance banks and some private sector banks were likely the major borrowers from the call money market Monday, while public sector banks were on the lending side as usual, dealers said. 

On Sunday, the RBI had net absorbed INR 1.71 trillion, largely unchanged from Saturday, the central bank data showed. Systemic liquidity fell to INR 991.23 billion Thursday, followed by the tax outflows in May. Banks had parked INR 1.50 trillion with the RBI at the Standing Deposit Facility, marginally down from INR 1.49 trillion Saturday. "We expect liquidity surplus to improve significantly towards the end of the week led by month-end government spending," Kotak Mahindra Bank said in a note Monday.

"With RBI not rolling over the FX (foreign exchange) forward book over the last few months, we estimate around $4.5 billion of maturity this week to weigh marginally on liquidity. After accounting for RBI's surplus transfer, we expect durable liquidity in the INR 5 trillion-INR 6 trillion range over the next few months, with the flow of funds to the banking system expected to come with a lag as government spending picks up pace." After market hours Friday, the RBI announced a surplus transfer of INR 2.69 trillion to the government for the financial year 2024-25 (Apr-Mar). 

Dealers are also optimistic about the systemic liquidity going ahead. "The impact of dividend (RBI's surplus transfer) on liquidity will take time to reflect, but the figure is good and now month-end spending will be there, so by next week the (liquidity) surplus will see a sharp rise," a dealer at a private sector bank said. Market participants estimated the government's month-end spending to be above INR 1 trillion, which will likely start from Wednesday. 

Market participants are of the view that the RBI may conduct more bond purchases under its open market operations auctions for smooth transmission of policy rate cut. "They (RBI) must conduct more OMOs," a dealer at a small-sized private sector bank said. "I expect more than INR 500 billion worth OMOs to happen. Also, there is a discussion of CRR (cash reserve ratio) cut. If RBI cuts CRR by 25 bps, it will again improve liquidity and support banks." At a meeting held by the central bank on Wednesday, banks had asked the RBI to allow more flexibility in the maintenance of the daily Cash Reserve Ratio, Informist reported earlier. 

However, the RBI's daily variable rate repo auction continues to receive weak response from the market, with the auction on Monday receiving bids worth INR 40.73 billion, far below the notified amount of INR 250 billion. Primary dealers were likely the major borrowers at the auction, dealers said.

OUTLOOK

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

* During the day, the call rate is seen in a range of 5.60-5.90%, dealers said.

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

CALL RATE

5.85%--Monday close for one-day loans

5.85%--Monday open for one-day loans

5.50%--Friday close for three-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below RBI's repo rate; systemic liquidity rises to INR 1.7 tln

MUMBAI – The inter-bank call money rate was lower than the Reserve Bank of India's repo rate of 6.00% Monday. After being under pressure due to goods and services tax outflows, the one-day call money rate opened at 5.85%, after two consecutive days of opening at 5.90%. The weighted average call rate was 5.85% as of 1000 IST. Market participants expect demand in the call money market to be moderate due to lack of major fund requirements. 

The triparty repo rate, where mutual funds are major lenders, opened at 5.74%. The weighted average triparty repo rate was 5.75% as of 1000 IST. On Friday, the RBI had net absorbed INR 1.70 trillion from the banking system. Dealers expect weighted average call rate to remain below 5.90% and the tri-party repo weighted average rate to be below 5.85%. 

The systemic liquidity rose to INR 1.70 trillion, up from INR 991.23 billion Thursday. Banks had parked INR 1.82 trillion with the RBI at the Standing Deposit Facility, up from INR 1.39 trillion Thursday, RBI data showed. 

"This (improvement in systemic liquidity) is a positive sign and it is mainly because of higher inflows," a dealer at a private sector bank said. On Friday, the banking system received inflows worth INR 115.19 billion from the Treasury-bill auction held on Wednesday and some minor inflows from coupon payments on state and central government bonds. 

"It (systemic liquidity) will further improve with the government's month-end spending, which I expect to be above INR 1 trillion," the dealer said. The dealer estimated the liquidity surplus to rise further to INR 2.7 trillion by May-end. 

After market hours Friday, 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. "There will not be any impact on the rates immediately," a dealer at a state-owned bank said. "Subsequently, the government's spending will start, and we will see the change in rates after Jun. 15." 

With comfortable systemic liquidity and availability of cheaper funds at the overnight money market, the RBI's daily variable rate repo auctions will continue to receive low bids, dealers said. Dealers expect bids worth INR 45 billion at the overnight auction Monday, far below the notified quantum of INR 250 billion.

End

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

Edited by Deepshikha Bhardwaj

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