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Informist, Thursday, May 29, 2025

By Srijita Bose

MUMBAI – The inter-bank call money rate ended below the Reserve Bank of India's repo rate of 6.00% Thursday. The weighted average money market rates also remained below the repo rate on account of ample funds in the banking system, dealers said. Inflows from the government's month-end spending and absence of any significant outflows from the system kept the borrowing rates low, they said. 

The one-day call money rate closed at 5.80% Thursday, flat against Wednesday. The weighted average call rate was 5.78% against 5.80% the previous day. The triparty repo rate, where mutual funds are major lenders, closed at 5.75%. The weighted average triparty repo rate was 5.72%, against 5.71% Wednesday.

As of Wednesday, the banking system liquidity surplus, as reflected from the RBI's net absorption of funds from the banking system, was INR 1.91 trillion. The figure is expected to rise to around INR 2.5 trillion after the inflows from the government's salary and pension payments fully reflect in the banking system. 

Traders widely expect the RBI's Monetary Policy Committee to cut the policy rate by another 25 basis points next week, while some expect the RBI to announce more liquidity infusing measures. "Banks have comfortable liquidity and there is constant support from the RBI too, but there are talks that it (central bank) could bring additional measures for increasing liquidity for transmission of rate cuts," a dealer at a private sector bank said. Traders expect measures such as a cut in the cash reserve ratio or more open market operation auctions to purchase government bonds. 

Owing to ample liquidity in the banking system, the RBI's daily variable rate repo auction continued to receive tepid response from the market, with the auction Thursday receiving bids worth INR 33.35 billion, far below the notified amount of INR 250 billion.

The RBI's annual report for 2024-25 (Apr-Mar) Thursday said the central bank will continue with liquidity operations in tune with the stance of the monetary policy. The RBI also said it will continue to manage liquidity to support the productive needs of the economy and will revisit the optimal level of systemic liquidity required for the effective transmission of monetary policy.  

"Rates should remain around SDF (standing deposit facility) or could go even lower tomorrow (Friday)," a dealer at another private sector bank said. "There is (government bond) auction tomorrow (Friday), so there could be some demand from PDs (primary dealers) for underwriting requirements, but overall rates should stabilise because liquidity is also expected to increase."

OUTLOOK

* On Friday, the three-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 a three-day variable rate repo auction for INR 250.00 billion at 1000-1030 IST.

* RBI decided not to hold the 14-day main VRR operation for the upcoming fortnight for the second straight time. However, the omission of the main VRR operation is unlikely to have any impact on borrowing rates during the day. 

CALL RATE

5.80%--Thursday close for one-day loans

5.82%--Thursday  open for one-day loans

5.80%--Wednesday close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate on hope of more liquidity on govt spending

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 6.00% Thursday. Expectation of further improvement in liquidity due to the government's ongoing spending for the month-end is expected to keep rates lower for the rest of the day, dealers said. 

The one-day call money rate opened at 5.82% Thursday and, as of 0948 IST, the weighted average call rate was also at the same level. The triparty repo rate, where mutual funds are major lenders, opened at 5.69%. The weighted average triparty repo rate was 5.70%.

"Rates should be around here only. I don't see much of a movement and spreads should mostly be flat today (Thursday)," a dealer at a private sector bank said. "The month-end spending shoud pick up tomorrow and I am ball-parking around INR 1.25 trillion to come by (June) 1 and 2."

On Wednesday, the RBI had net absorbed INR 1.91 trillion from the banking system, slightly higher than INR 1.89 trillion Tuesday, central bank data showed. Banks parked INR 2.29 trillion with the RBI at the Standing Deposit Facility rate Wednesday, compared with INR 2.27 trillion Tuesday.

"Liquidity has not changed much but some flows have already started and the major flow will only come in tomorrow (Friday)," a dealer at a state-owned bank said. "But TREPS should come down later in the day."

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

End

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

Edited by Saji George Titus

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