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Informist, Wednesday, May 28, 2025

By Christina Titus

MUMBAI – The inter-bank call money rate ended below the Reserve Bank of India's repo rate of 6.00% Wednesday. Rates remained on the lower side throughout the day as better liquidity in the banking system lead to subdued demand for funds from banks, dealers said. The government's month-end spending, which started Tuesday, has led to a surge in liquidity, dealers said. 

The one-day call money rate closed at 5.80% Wednesday, up from Tuesday's close of 5.45%. The weighted average rate was unchanged at 5.80%. The triparty repo rate, where mutual funds are major lenders, closed at 5.75%. The weighted average triparty repo rate was 5.71%, up marginally from 5.70% Tuesday.

Trade volume in the overnight call market was INR 159.81 billion, slightly down from INR 161.19 billion Tuesday. Total money market volume was INR 5.92 trillion Wednesday. "Today (Wednesday), small finance banks were likely on the lending side," a dealer at a small-sized private-sector bank said.

On Tuesday, the RBI had net absorbed INR 1.89 trillion from the banking system, higher than INR 1.70 trillion Monday, data from the central bank showed. Banks had parked INR 2.27 trillion with the RBI at the standing deposit facility rate, up from INR 2.11 trillion Monday. 

"The system will reach INR 2.00 trillion liquidity tomorrow and INR 3.10 trillion when the month-end spending is completed," a dealer at a private-sector bank said. Systemic liquidity, already boosted by the government's month-end spending, will surge further if expectations of a cut in the cash reserve ratio are fulfilled at the next RBI Monetary Policy Committee meeting, the outcome of which is due Jun. 6.

At a meeting called by the central bank May 21, banks had asked the RBI to allow more flexibility in the maintenance of the daily cash reserve ratio, Informist had reported earlier. "Assuming RBI cuts 50 bps, it will infuse 1 lakh crore (INR 1 trillion) into the system," a dealer from a state-owned bank said.  

The RBI's daily variable rate repo auction continues to receive weak response from the market, with the auction Monday receiving bids worth INR 38.43 billion, far below the notified amount of INR 250.00 billion. Primary dealers were likely the major borrowers at the auction, dealers said.

OUTLOOK

* On Thursday, 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 250.00 billion at 1000-1030 IST.

CALL RATE

5.80%--Wednesday close for one-day loans

5.84%--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; month-end inflows to boost liquidity more

MUMBAI – The interbank call money rate remained below the Reserve Bank of India's repo rate of 6.00% Wednesday. Rates are expected to remain lower than the repo rate and even fall further during the day due to reduced demand for funds from banks as the government's month-end spending is expected to boost the banking system liquidity, dealers said.  

The one-day call money rate opened at 5.84% Wednesday and, as of 0948 IST, the weighted average call rate was also the same. The triparty repo rate, where mutual funds are major lenders, opened at 5.70%. The weighted average triparty repo rate was 5.66%.  "During the day, call money market is expected to trade around 5.80% level and TREPS in the range of 5.68-5.70% level," a dealer at a state-owned bank said.

On Tuesday, the RBI had net absorbed INR 1.89 trillion from the banking system, higher than INR 1.70 trillion Monday, the central bank data showed. Banks parked INR 2.27 trillion with the RBI at the Standing Deposit Facility rate, up from INR 2.11 trillion Monday. 

"Government spending has started," the dealer at the state-owned bank said. "However, major inflows will happen on (May) 29th or 30th. We estimate total inflows to be around INR 1.5 trillion."

At the RBI's daily variable rate repo auction Wednesday, traders expect banks to put low bids and some banks to likely skip borrowing at the auction as rates in the money market are expected to inch down, dealers said. Banks, primary dealerships will likely bid for INR 40 billion at the overnight INR 250-billion auction and the cut-off rate is estimated at 6.01%, according to an Informist poll.

"I am already getting funds at a cheaper rate in TREPS, why would I go for VRR (variable rate repo) now, moreover, rates are expeced to fall futher as government's spending picks up," a dealer at a private sector bank said.  (Srijita Bose)  

End

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

Edited by Rajeev Pai

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