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Informist, Friday, Jun. 6, 2025

By Siddhi Chauhan

MUMBAI – The interbank call money rate Friday ended below the Reserve Bank of India's Standing Deposit Facility rate as ample liquidity curbed demand for funds, dealers said. Borrowing rates fell sharply after the central bank's Monetary Policy Committee announced a 50-basis-point cut in repo rate to 5.50%. Consequently, the Standing Deposit Facility rate was adjusted downwards to 5.25%.

The three-day call money rate ended at 5.00%, down from 5.55% for one-day loans Thursday, with the weighted average rate also declining sharply to 5.42% from 5.76% Thursday. The triparty repo rate closed at 5.29%. The weighted average rate in the larger tri-party repo market was 5.29%, sharply down from 5.66% Thursday.

Money market rates fell sharply as the 50 bps rate cut came as a surprise for the market, dealers said. The market was factoring in a rate cut of just 25 bps. In a poll of 14 economists and market participants by Informist, 13 had expected the MPC to lower the repo rate by 25 bps from 6.00%; only State Bank of India expected a 50-bps cut.

The jumbo rate cut was not the only surprising factor for the market. Apart from the 50-bps rate cut, the RBI also announced a cut in the cash reserve ratio by 100 bps to 3% of banks' net, demand and time liabilities. The CRR will be cut by 100 bps in four tranches of 25 bps starting Sept. 6. The CRR cut is expected to infuse liquidity to the tune of INR 2.5 trillion into the banking system, RBI Governor Sanjay Malhotra said. While both the announcements were positive for the market, the latter failed to lend immediate cues to the money market rates, dealers said.

"CRR cut won't have an immediate impact on the money market rates because the flows will come into the system starting September," a dealer at a state-owned bank said. "Yes, it is positive as more than INR 2 trillion will be infused in September."

The MPC members also unanimously changed the stance to 'neutral' from 'accommodative'. Following this announcement, hopes of further rate cuts withered, leading the market to expect the terminal repo rate to remain at 5.50%. Many market participants also expect the central bank to do away with the daily variable rate repo operations.

"Looking at the communication at the policy it was clear we might not see a rate cut in the next MPC," a dealer at a private sector bank said. "Looking at the current situation, it feels that RBI may need not conduct OMOs (open market operations) and VRRs (variable rate repo) operations as well. If they do continue with daily VRRs, they should decrease the quantum looking at the tepid response." At the three-day variable rate repo auction held during the day, banks and primary dealership borrowed INR 35.50 billion, sharply down from INR 250 billion notified.

Malhotra also said that the accommodative stance was "just an intent" and the change to neutral was supported by current conditions. "Current conditions warranted change of stance," he said. "MPC will continue to monitor the incoming data and especially given these uncertainties, we will move primarily on what the data suggests." Some market participants even speculated about the possibility of the RBI conducting variable rate reverse repo operation going ahead given the ample liquidity in the banking system.

On Thursday, the RBI had net absorbed INR 3.03 trillion, marginally higher from INR 2.86 trillion Wednesday, central bank data showed.

OUTLOOK

* The interbank call market is shut Saturday on account of Bakri Eid. On Monday, the one-day call rate is likely to open below the RBI's repo rate of 5.50% on comfortable liquidity.

* During the day, the call rate is seen in a range of 4.90-5.50% and the triparty repo rate in a range of 4.80-5.30%.

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

CALL RATE

5.00%--Friday's close for three-day loans

5.50%--Friday's open for three-day loans

5.55%--Thursday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Falls sharply below SDF rate on low demand from banks, rate cut

MUMBAI – The interbank call money rate was sharply below the Reserve Bank of India's Standing Deposit Facility rate of 5.25% due to low demand for funds amid ample liquidity, dealers said. Borrowing rates fell across tenures as the central bank's Monetary Policy Committee unexpectedly cut the repo rate by 50 basis points. 

At 1433 IST, the three-day call rate was at 4.85% against the close of 5.55% for one-day loans on Thursday, while the weighted average rate was 5.44%, sharply below 5.76% Thursday. The weighted average rate in the triparty repo market was at 5.29%, sharply down from 5.66% Thursday. After the rate cut, the overnight Mumbai Interbank Offered Rate fell to 5.50%, the lowest since Sept. 26 2022. 

The market was factoring in a rate cut of just 25 bps. In poll of 14 economists and market participants by Informist, 13 had expected the MPC to lower the repo rate by 25 bps from 6.00%; only State Bank of India expected a 50-bps cut. Apart from a surprising 50-bps rate cut, the committee also changed its stance to 'neutral' from 'accommodative'.

"This MPC was very surprising, people were expecting only 25 bps rate cut. And I think not even one person was of the view that they (RBI) will cut the CRR rate," a dealer at a state-owned bank said. "They did too much in this policy, the market is too confused what to make out of this move. Definitely, easier transmission will happen after this, but market thinks that policy could go either way now that they have changed stance to neutral."

The committee announcing a change in stance has raised questions about its approach on the liquidity front, dealers said. "It is difficult to say what their approach will be on the liquidity front. But I feel they won't have to take the support of OMOs (open market operations) now," a dealer at a private sector bank said. "But I still think that they will continue with the daily variable rate repo operations for at least a week to support PDs (primary dealerships)." On Thursday, the RBI had net absorbed INR 3.03 trillion, marginally higher from INR 2.86 trillion Wednesday, central bank data showed. 

The RBI has already infused INR 9.5 trillion of liquidity into the banking system since January, the RBI governor said. Open market purchases of gilts, including through NDS-OM, injected durable liquidity amounting to INR 5.2 trillion. Additionally, term variable rate repo auctions and dollar/rupee buy-sell swaps injected liquidity amounting to INR 2.1 trillion and INR 2.2 trillion, respectively, during the same period.

The Reserve Bank of India also cut the cash reserve ratio by 100 basis points to 3% of banks' net, demand and time liabilites, Governor Sanjay Malhotra said while detailing the outcome of the Monetary Policy Committee's meeting on Friday. The RBI will cut the cash reserve ratio by 100 bps in four tranches of 25 bps starting Sept. 6. Money market rates did not take significant cues from this announcement as liquidity will be infused into the system only in September.

The CRR cut is expected to infuse liquidity to the tune of INR 2.5 trillion into the banking system, the governor said. The regulator had cut the cash reserve ratio by 50 bps to 4.00% of net, demand and time liabilities in two equal tranches in December, which infused INR 1.16 trillion of liquidity into the system. (Siddhi Chauhan)

India Call: Not traded on caution ahead of RBI's MPC meet outcome

MUMBAI – The interbank call money rate was not traded as of 0952 IST as market expected money market rates to fall on hope of a rate cut of 25 basis points by the Reserve Bank of India's Monetary Policy Committee, which is scheduled to detail its outcome at 1000 IST. "People are avoiding trading in the call market right now. Most of the trade is happening in the TREPS (triparty repo) market only," a dealer at a state-owned bank said. "We are able to see bids at 5.80% but no deal is getting striked because of MPC. A lot of annoucements are expected apart from rate cut including widening of LAF corridor." On Thursday, the one-day call money rate closed at 5.55%.

Some market participants expected the RBI to widen its Liquidity Adjustment Facility corridor asymmetrically, bringing the Standing Deposit Facility rate to 50 bps below the policy repo rate from the current spread of 25 bps. This would be similar to a 50-bps cut in the policy rate, as the overnight rate will continue to near the lower end of the LAF corridor with surplus liquidity in the banking system, dealers said. A small fraction of the market expects the RBI to widen the Liquidity Adjustment Facility corridor to 50 bps on either side of the repo rate.

The triparty repo rate, where mutual funds are major lenders, opened at 5.59%, below the RBI's Standing Deposit Facility rate of 5.75% while the weighted average triparty repo rate stood at 5.46%. At 0934 IST, the volumes in the triparty repo was at was at INR 570.43 billion. 

On the liquidity front, market participants expect some outflows for excise duty and tax deducted at source to take place during the day, dealers said. Outflows for excise duty are expected to drain around INR 250 billion to INR 500 billion. On Thursday, the RBI had net absorbed INR 3.03 trillion, marginally higher from INR 2.86 trillion Wednesday, central bank data showed. Net absorbed liquidity saw a slight rise as banks reduced the cash balance maintained, dealers said. As per RBI data, funds maintained with the central bank fell slightly to INR 9.40 trillion Thursday, from INR 9.46 trillion on Wednesday. End

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

Edited by Ashish Shirke

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