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Informist, Wednesday, Jun. 4, 2025

By Siddhi Chauhan

MUMBAI – The interbank call money rate ended sharply below the Reserve Bank of India's Standing Deposit Facility rate of 5.75% as the liquidity surplus touched a near three-year high on inflows from government month-end spending, dealers said. Inflows from government month-end spending added around INR 1.75 trillion to the banking system, according to market participants. 

"The liquidity has been quite comfortable. The government's month-end spending has helped liquidity to reach at RBI's target of 1% of NDTL (net demand and time liabilities of banks)," a dealer at a state-owned bank said. "Inflows from salaries and pension alone would have amounted to INR 800 billion."

The one-day call money rate closed at 5.45% Wednesday, lower than 5.80% Tuesday. The weighted average call rate was 5.75%, marginally lower than 5.77% Tuesday. The triparty repo rate, where mutual funds are major lenders, closed at 5.60%. The weighted average triparty repo rate was 5.62%, slightly up from 5.59% Tuesday.

On Tuesday, the RBI had net absorbed INR 3.01 trillion from the banking system, the highest level since Jul. 5, 2022. The net absorption was INR 2.77 trillion on Monday, central bank data showed. However, the liquidity surplus is unlikely to stay near the INR 3 trillion mark as outflows for excise duty and tax deducted at source are expected to drain around INR 700 billion from the banking system starting Thursday, dealers said.

The comfortable liquidity conditions were evident as the participation in the overnight variable rate repo operation continued to be poor, dealers said. At the RBI's daily variable rate repo auction Wednesday, banks and primary dealers borrowed INR 42.71 billion as against the notified amount of INR 250 billion and lower than INR 50.19 billion borrowed Tuesday. 

The total money market volume remained above INR 5 trillion as most banks engaged in spread trading, as triparty repo rate was mostly below the SDF rate throughout the day, dealers said. "There was nothing special about today's (Wednesday's) trading activity, just like other days, we were borrowing at lower rates from the market, and parking it at the SDF rate," a dealer at another state-owned bank said. On Tuesday, funds parked under the Standing Deposit Facility were at INR 3.14 trillion, the highest in almost two months, from INR 2.92 trillion on Monday.

Trade volume in the overnight call market was INR 137.18 billion, slightly lower from INR 142.93 billion Tuesday. Trade volume in the tri-party repo market was INR 3.69 trillion, down from INR 3.95 trillion Tuesday. The total money market volume, including triparty repo, was INR 5.54 trillion Wednesday. 

Market participants look forward to the RBI's Monetary Policy Committee meeting outcome on Friday. Traders widely expect the repo rate to be cut by 25 bps for the third straight time. A few traders also expect the RBI to widen the Liquidity Adjustment Facility corridor Friday to 50 basis points on either side of the repo rate, from 25 bps currently. 

OUTLOOK

* On Thursday, 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

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

5.80%--Wednesday's open for one-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below RBI repo rate; liquidity surplus most in nearly 3 years

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 6.00% on Wednesday due to low demand for funds from banks, dealers said. The surplus in systemic liquidity rose sharply Tuesday to the highest level since Jul. 5, 2022, which further kept demand subdued, they said. 

The one-day call money rate opened at 5.80% Wednesday and, at 0954 IST, the weighted average call rate was also at the same level. The triparty repo rate, where mutual funds are major lenders, opened at 5.60%, below the RBI's Standing Deposit Facility rate of 5.75%.

On Tuesday, the RBI had net absorbed INR 3.01 trillion from the banking system, higher than the INR 2.77 trillion Monday, central bank data showed. Banks also increased the amount parked with the RBI at the Standing Deposit Facility to INR 3.14 trillion on Tuesday, the highest in almost two months, from INR 2.92 trillion on Monday. 

"The higher SDF is because of government's flows came in after market hours," a dealer at a state-owned bank said. "But now those flows seems to be done. So, liquidity should remain steady here till (RBI's) MPC (Monetary Policy Committee) outcome on Friday, where we are expecting further liquidity measures."

At the RBI's overnight variable rate repo auction Wednesday, 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 at the auction to be around INR 40 billion, lower than the INR 50.19 billion of bids received at the overnight auction Tuesday, and the cut-off rate is estimated at 6.01%, according to an Informist poll.  End

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

Edited by Saji George Titus

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