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Informist, Friday, May 30, 2025

By Srijita Bose

MUMBAI – The inter-bank call money rate ended at the Reserve Bank of India's Standing Deposit Facility rate on Friday on inflows from the government's month-end spending, dealers said. However, weighted average rates in the money market inched up as banks adjusted their cash reserve requirement on account of reporting Friday, they said.

The three-day call money rate closed at 5.75% Friday, lower than 5.80% on one-day loans on Thursday. The weighted average call rate was 5.85% against 5.78% the previous day. The triparty repo rate, where mutual funds are major lenders, closed at 5.80%. The weighted average triparty repo rate was 5.83%, against 5.72% Thursday.

"Higher rates in TREPS were due to redemption pressures from mutual funds, but later, when rates cooled off, they only came to lend in the market on an overnight basis for which they got around 5.75-6.00%," a dealer at a private sector bank said. "But it's also a reporting Friday, so that too was a reason for higher rates."

Meanwhile, the RBI's daily variable rate repo auction received bids worth INR 87.21 billion. The bids in the variable repo auction, though lower than the notified amount of INR 250 billion, were a significant improvement from Thursday, when the bids were only INR 33.35 billion. A major part of the auction was likely bid by primary dealers for their cash requirement due to Friday's INR 360 billion government bond auction, dealers said. 

As of Wednesday, the banking system liquidity surplus, as reflected from the RBI's net absorption of funds from the banking system, was INR 1.80 trillion. The figure is expected to rise to around INR 2.50 trillion after the government's salary and pension payments get reflected 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 also expect the RBI to announce more liquidity infusing measures. However, the expectations of a further 25 bps cut after the June policy were reduced after India's GDP print for Jan-Mar came in at a sharply higher-than-expected 7.4%.

OUTLOOK

* On Saturday, the two-day call rate will likely open below the RBI's repo rate of 6.00% on comfortable liquidity.

* As is usually the case on Saturdays, call money market volumes will likely remain low.

* During the day, the call rate is seen in a range of 5.50-5.85% and the triparty repo rate in a range of 5.40-5.80%.

CALL RATE

5.75%--Friday close for three-day loans

5.85%--Friday open for three-day loans

5.80%--Thursday close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate; some demand seen from bks, PDs' cash needs

MUMBAI – The inter-bank call money rate was below the Reserve Bank of India's repo of 6.00% as traders expect month-end inflows to boost the liquidity surplus, dealers said. There was some demand in early trade from banks and primary dealers for three-day funding needs and requirements for the reporting Friday, dealers said. 

The three-day call money rate opened at 5.85% Friday and, as of 0956 IST, the weighted average call rate was 5.86%. The triparty repo rate, where mutual funds are major lenders, opened at 5.74%. The weighted average triparty repo rate was 5.79%.

"Today (Friday), there is some panic in the market due to reporting Friday and the three-day call rate," a dealer at a state-owned bank said. "There could be some trades above the repo, but the WARs (weighted average rates) should be around 5.80-5.95%." 

On Thursday, the RBI had net absorbed INR 1.80 trillion from the banking system, lower than INR 1.91 trillion Wednesday, central bank data showed. Banks parked INR 2.19 trillion with the RBI at the Standing Deposit Facility rate Thursday, compared with INR 2.29 trillion Wednesday.

Liquidity in the banking system fell slightly as banks reduced the amount parked at the Standing Deposit Facility to meet their cash reserve requirements as the current reporting fortnight ends Friday, dealers said. However, after the government's salary and pension payments fully reflect in the banking system, traders expect the liquidity surplus to rise to around INR 2.5 trillion to INR 3 trillion. 

In the triparty repo market, some banks were major borrowers due to lower rates there, dealers said. Mutual funds, who are usually the major lenders in the market, could reduce their lending Friday due to month-end redemption requirements, they said. Meanwhile, primary dealers were also actively borrowing funds due to their requirement for funds ahead of the INR 360-billion government bond auction, they said. 

At the RBI's daily variable rate repo auction Friday, some traders expect higher borrowing by primary dealerships for their cash requirements at the gilt auction, dealers said. Banks and primary dealerships are likely to bid for INR 46 billion at the three-day INR 250-billion auction, higher than INR 33.35 billion borrowed on Thursday, and the cut-off rate is estimated at 6.01%, according to an Informist poll.  (Srijita Bose)

End

Edited by Saji George Titus

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