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Informist, Tuesday, May 27, 2025

By Vidhushi RajPurohit 

MUMBAI – Weighted average rates in the money market remained below the Reserve Bank of India's repo rate of 6.00% as most traders did not need to tap the market amidst comfortable liquidity in the banking system, dealers said. Anticipation of inflows from the government's month-end spending, which is expected to start this week, also led to subdued demand, they said. Dealers estimated inflows from the government's month-end spending to be around INR 1.5 trillion.  

The call rate for one-day loans ended at 5.45%, against 5.85% on Monday. The weighted average rate in the call money market ended at 5.80%, marginally down from 5.81% the previous day. The weighted average rate in the triparty repo market, which includes mutual funds, ended at 5.70%, down from 5.73% Monday. 

Trade volume in the overnight call market was INR 161.19 billion, down from INR 176.76 billion Monday. Total money market volume was INR 5.93 trillion Tuesday.

"Rates are low because there are no big outflows now, so why would anyone want to borrow. The liquidity is at a good level and there is the RBI's support as well," a dealer at a private sector bank said. "We are near month-end and inflows will be there, so not much need for borrowing."

The systemic liquidity was at a surplus of INR 1.70 trillion Monday, as reflected from the RBI's net absorption of funds from the banking system. Traders expect the figure to rise to around INR 2.50 trillion by next week on the back of the month-end inflows. Lack of significant outflows this week is also expected to keep the banking system liquidity in an ample surplus, dealers said. 

The absence of funding needs was also evident from the meagre bids at the RBI's overnight variable rate repo auction Tuesday. Banks and primary dealerships put bids amounting to INR 35.42 billion, sharply lower than the notified figure of INR 250 billion. 

Money market rates are likely to fall further as the RBI's Monetary Policy Committee is widely expected to cut the policy rate by another 25 basis points in June. The RBI's MPC three-day meeting is scheduled to start on Jun. 4, with the outcome scheduled for Jun. 6. 

OUTLOOK

* On Wednesday, 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 5.60-5.85%, dealers said.

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

CALL RATE

5.45%--Tuesday close for one-day loans

5.83%--Tuesday open for one-day loans

5.85%--Monday close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate; demand seen moderate on lack of major outflows

MUMBAI – The inter-bank call money rate was lower than the Reserve Bank of India's repo rate of 6.00% Tuesday. Market participants expect demand to be moderate during the day due to lack of significant outflows. 

The one-day call money market rate opened at 5.83% Tuesday and, as of 0950 IST, the weighted average rate was 5.85%. The triparty repo rate, where mutual funds are major lenders, opened at 5.72%. The weighted average triparty repo rate was 5.71%. "Rates (money market) will remain on the lower side," a dealer at a state-owned bank said. "I expect TREPs (triparty repo rate) in the range of 5.65-5.75% and call (market rate) at 10 bps higher than TREPS." 

On Monday, the RBI had net absorbed INR 1.70 trillion, broadly unchanged from INR 1.71 trillion on Sunday, the central bank data showed. Banks parked INR 2.11 trillion with the RBI at the Standing Deposit Facility, up from INR 1.50 trillion Sunday.

"Systemic liquidity will remain at this level for at most two days and improve further with government's month-end spending," a dealer at a large public sector bank said. Dealers estimate the government's month-end spending to be around INR 1 trillion and the inflows likely to start from Wednesday. 

The RBI's daily variable rate repo auctions continue to receive low bids, with dealers expecting bids worth INR 45 billion at the overnight auction Tuesday, far below the notified quantum of INR 250 billion. "As cheaper funds are available at other platforms, variable rate repo auctions will not get much subscription and will continue to get bids at the same level," the state-owned bank dealer said.  (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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