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Informist, Tuesday, Jun. 3, 2025

By Srijita Bose

MUMBAI – The inter-bank call money rate ended below the Reserve Bank of India's repo rate of 6.00% Tuesday on lower demand for funds, dealers said. Rates were supported after the surplus liquidity in the banking system Monday rose to its highest level since Nov. 5, dealers said. 

The one-day call money rate closed at 5.80% Tuesday, higher than 5.45% Monday. The weighted average call rate was 5.77%, marginally lower than 5.79% Monday. The triparty repo rate, where mutual funds are major lenders, closed at 5.40%. The weighted average triparty repo rate was 5.59%, against 5.66% Monday.

"Mutual funds were on the lending side even at lower rates and banks were mostly on the borrowing side," a dealer at a private-sector bank said. "Liquidity is also up near INR 3 trillion and even with excise duty outflows before MPC (the RBI's Monetary Policy Committee meeting), liquidity will remain supported." 

Monday, the banking system liquidity surplus, as reflected in the RBI's net absorption of funds from the banking system, was INR 2.77 trillion. Inflows from the government's month-end spending boosted liquidity in the banking system, keeping rates near or below the RBI's standing deposit facility rate through most of the day, dealers said.

Many traders now expect the central bank to widen the Liquidity Adjustment Facility corridor Friday to 50 basis points on either side of the repo rate, from 25 bps currently. "It's not just about the liquidity but also about transmission," said a dealer at a state-owned bank. "But right now we are seeing that the TREPS (triparty repo rate) is below the SDF, so people are just borrowing there (triparty repo) and parking in SDF, which is why these numbers are also higher. So, there is a possibility that the RBI could widen the LAF corridor." 

Traders are widely expecting the repo rate to be cut by another 25 bps for the third straight time Friday. Others expect the RBI to announce more government bond purchases through open market operation auctions or a cut in the cash reserve ratio of banks.

At the RBI's daily variable rate repo auction, banks and primary dealers borrowed INR 50.19 billion, similar to INR 51.50 billion borrowed Monday.

OUTLOOK

* On Wednesday, the one-day call rate is likely to 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 5.20-5.85% and the triparty repo rate in a range of 5.35-5.80%.

* RBI will hold an overnight variable rate repo auction for INR 250.00 billion at 1000-1030 IST.

CALL RATE

5.80%--Tuesday's close for one-day loans

5.85%--Tuesday's open for one-day loans

5.45%--Monday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate on low demand, liquidity surplus most since Nov

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 6.00% on Tuesday due to low demand for funds from banks, dealers said. A flush of inflows due to the government's month-end spending pushed up the surplus liquidity to the highest level since Nov. 5.

The one-day call money rate opened at 5.85% Tuesday and, at 0941 IST, the weighted average call rate was 5.82%. The triparty repo rate, where mutual funds are major lenders, opened at 5.68%, and the weighted average triparty repo rate was also at the same level. 

On Monday, the RBI had net absorbed INR 2.77 trillion from the banking system, higher than the INR 2.32 trillion Sunday, central bank data showed. Banks also increased the amount parked with the RBI at the Standing Deposit Facility to INR 2.92 trillion on Monday, from INR 2.32 trillion on Sunday. 

"Liquidity is now nearing INR 3 trillion and the target of 1% of NDTL (net demand and time liabilities of banks) has been met, so that is a good sign," a dealer at a private sector bank said. "Rates should be supported today (Tuesday), there are no major outflows so rates could end even lower." RBI Governor Sanjay Malhotra, in his monetary policy statement in April, had said the central bank will aim to maintain a surplus liquidity around 1% of banks' net demand and time liabilities, and as of May 16, that would amount to a liquidity surplus figure of INR 2.3 trillion.

At the RBI's overnight variable rate repo auction Tuesday, primary dealers and banks are expected to borrow less than 20% of the notified quantum of INR 250 billion, dealers said. Traders expect the total bids to be around INR 45 billion at the auction, lower than the INR 51.50 billion bids received at the overnight auction Monday, and the cut-off rate is estimated at 6.01%, according to an Informist poll.  (Srijita Bose)

End

Edited by Rajeev Pai

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