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Informist, Wednesday, Jun. 11, 2025

By Siddhi Chauhan

MUMBAI – The interbank call money rate ended below the Reserve Bank of India's Standing Deposit Facility rate of 5.25% Wednesday due to low demand for funds as liquidity remains sufficient, dealers said. Demand in the term repo segment rose as market participants expect borrowing costs to rise in the coming days, they said. 

The one-day call money rate ended at 5.00%, down from 5.25% Tuesday. The weighted average call rate was at 5.31%, tad up from 5.30% Tuesday, while the triparty repo rate closed at 5.17% against 5.19% on Tuesday. The weighted average rate in the larger tri-party repo market was 5.20%, tad up from 5.19% Tuesday.

"The overnight rates remained in the similar range as yesterday (Tuesday) because of no significant outflows on Wednesday. But when outflows for advance tax starts, call rates are expected to align with the repo rate," a dealer at a state-owned bank said. "For better transmission of rate cut, call rates should hover around the repo rate so RBI would definitely want the call rate to be at or near repo rate."

News reports Wednesday said the RBI is likely to consider holding variable rate reverse repo auctions to anchor the money market rates near the repo rate of 5.50%. The market was already rife with the speculation of RBI holding variable rate reverse repo auctions after the central bank Monday said it was discontinuing its daily variable rate repo auctions starting Wednesday, dealers said. 

While government security traders had sold bonds across tenures due to this news, money market traders believed the possibility of the RBI coming up with variable rate reverse repo operation was quite unlikely. "I don't think the RBI should announce VRRRs. Not only would it be a lot to take on, but it wouldn't make sense to push overnight rates near repo rate by intervening when you already have good amount of outflows in this month," a dealer at another state-owned bank said. "I think they will let the market be on its own this month because once the outflows for advance tax starts naturally we will see a rise in rates." 

On Tuesday, the RBI net absorbed INR 2.62 trillion, higher than INR 2.45 trillion Monday, the central bank data showed. The outflows for corporate advance tax payments, which is likely to start from Thursday, is expected to drain around INR 1.2 trillion-INR 1.5 trillion from the banking system, dealers said. Some market participants expect the last tranche of advance tax outflows to take place on Monday as Jun. 15 is falling on Sunday, dealers said. Usually, the outflows for advance tax payments are completed by 15th of the quarter end.

The impact of these outflows are expected to be muted as the government will pay out over INR 800 billion, which will match the day of the advance tax outflows, for the maturity of the 5.22%, 2025 bond. There seems to be a lack of clarity in the market regarding the payment of the bond as the maturity date is also falling on Sunday. "Usually as per directions, if the maturity date is on a holiday, coupon payment is done a day after but principal payment is done on the previous working day," a dealer at a private bank said. "So most probably, these inflows will be done on Friday, muting the impact of advance tax."

Anticipation of rates rising in the coming weeks have led many primary dealers to borrow in advance through term repo from tenures ranging from 2-34 days, dealers said. Most of the deals were struck above the Marginal Standing Facility rate of 5.75%. The rates are expected to rise going forward due to outflows for goods and services tax and quarter-end demands, dealers said. GST outflows are expected to drain around INR 1.5 trillion to INR 1.7 trillion from the banking system, dealers said. 

OUTLOOK

* On Thursday, the one-day call rate is likely to open near the RBI's repo rate of 5.50%.

* During the day, the call rate is seen in a range of 5.00-5.60% and the triparty repo rate in a range of 4.95-5.45%.

CALL RATE

5.00%--Wednesday's close for one-day loans

5.35%--Wednesday's open for one-day loans

5.25%--Tuesday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below RBI's repo rate; volume in 15 day term repo may pick up

MUMBAI – The overnight interbank call money rate was below the Reserve Bank of India's repo rate of 5.50% on Wednesday due to comfortable liquidity and low demand for funds. Rates on one-day call are expected to remain around levels similar to Tuesday, but rates on the term repo could inch up on expectations of liquidity drain in the last two weeks of June, dealers said.

The one-day call money rate opened at 5.35% Wednesday and, at 1008 IST, the weighted average call rate was also the same. The triparty repo rate, where mutual funds are major lenders, opened below the RBI's Standing Deposit Facility rate at 5.18%. At 1008 IST the triparty repo rate was at 5.20%, with the weighted average triparty repo rate at 5.18%.

Traders with long-term demand borrowed funds through 15-day term repo as they were worried about a hike in rates in the last two weeks of the month. Rates are expected to rise in the last two weeks of June due to goods and service tax outflows and high demand for funds during the end of the Apr-Jun quarter, dealers said. Borrowing in long-term call tenures could increase during the day as traders will try to preempt their payment requirements, they said. "Yesterday (Tuesday), borrowers got good rates for the 15-day call which was just 5 basis points above MSF," a dealer at a private sector bank said. "Today (Wednesday) also, we could see more volumes in this tenure."  However, most traders said that though rates might inch up, they see the weighted average rates to remain near the RBI's repo rate.  

On Tuesday, the RBI net absorbed INR 2.62 trillion, higher than INR 2.45 trillion Monday, central bank data showed. Payment for corporate advance taxes, expected to be made by the end of this week, is estimated to drain out around INR 1.5 trillion to INR 2.00 trillion, dealers said. With the RBI discontinuing daily variable rate repo auctions, some expect rates to go up towards the end of the week, dealers said. Others, however, said that with liquidity in the system ample, rates will remain anchored. 

The impact of advance tax outflows is expected to be muted due to inflows from maturity of 5.22%, 2025 bond, dealers said. The bond will mature on Sunday. "Inflows from bond maturity are also coming. Since the maturity date is falling on Sunday, the payment would likely come on Friday," a dealer at a state-owned bank said. " Usually, in case of holiday, principle amount comes before the interest." (Srijita Bose)

End

Edited by Tanima Banerjee

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