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Informist, Wednesday, Jun. 18, 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 as demand from most banks ebbed owing to surplus liquidity, dealers said. Otherwise, the lacklustre volumes rose towards the close as some small finance banks and small state-owned banks borrowed, possibly due to credit offtake, dealers said.

The one-day call money rate closed at 5.10% Wednesday, up from 4.95% Tuesday. The weighted average call rate was 5.27%. The call rate moved in the range of 4.75-5.35%. The trade volume in the overnight call money market was INR 150.58 billion, up slightly from INR 138.28 billion Tuesday. The total money market volume, including tri-party repos, was INR 5.97 trillion, slightly down from INR 6.20 trillion Tuesday.

"The volume was very dull in the morning, it picked up after TREPS (tri-party repo market) closed," a dealer at a state-owned bank said. "We were not expecting this demand but it was nothing unusual. As usual primary dealers were on the borrowing side. Some small private(-sector) and state-owned banks were also borrowing today (Wednesday) because after advance tax outflows they must have run out of cash."

Some small finance banks were also said to be on the borrowing side, possibly due to credit offtake, dealers said. "It is difficult to say why were they borrowing. But I think it is because of credit offtake," a dealer at another state-owned bank said. "Generally towards the quarter-end, credit offtake is high." Longer tenure deals in the term repo segment also took place during the day as some banks tried to accumulate funds for their long-term needs, dealers said. 

Most market participants had expected the volumes to stay dull throughout the day owing to sufficient liquidity and absence of major outflows, dealers said. Tuesday, the net absorbed liquidity was INR 2.90 trillion, slightly higher than INR 2.68 trillion Monday, data from the RBI showed. Funds parked under the RBI's standing deposit facility also rose to INR 3.00 trillion Tuesday from INR 2.78 trillion Monday.

Towards the end of the week, liquidity is expected to be under pressure due to goods and services tax outflows, as per dealers. Outflows for GST, which are likely to start Friday, are expected to drain INR 1.5 trillion to INR 2.0 trillion, dealers said. A few outliers even expect these outflows to drain around INR 3.0 trillion from the banking system, dealers said. 

OUTLOOK

* Thursday, the one-day call rate is likely to open below the RBI's standing deposit facility rate on low demand.

* During the day, the call rate is seen in a range of 4.80-5.40% and the tri-party repo rate in a range of 4.60-5.30%.

CALL RATE

5.10%--Wednesday's close for one-day loans

5.30%--Wednesday's open for one-day loans

4.95%--Tuesday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo; ample liquidity, low demand seen pushing rates down

The interbank call money rate was below the Reserve Bank of India's repo rate of 5.50% due to low demand for funds in the absence of any significant outflows on Wednesday, dealers said. Owing to low demand for funds, call money rates are expected to trade in a range of 4.90-5.35%, while triparty repo rates are seen at 4.80-5.25%. 

The one-day call money rate opened at 5.30% Wednesday and, at 0950 IST, the weighted average call rate was also at the same level. The triparty repo rate, where mutual funds are major lenders, opened at 5.21%, below the RBI's Standing Deposit Facility rate of 5.25%. At 0950 IST, the triparty repo rate was at 5.20%. The weighted average triparty repo rate was also 5.20% at the same time.

"There is literally no demand today, look at the rates. If this continues to happen, RBI should intervene somehow," a dealer at a state-owned bank said. "But they might not do anything for another two days as outflows for GST (goods and services tax) will start from Friday. A few people I spoke to are expecting GST outflows to amount to INR 3 trillion."

Outflows for goods and services tax, which are likely to start from Friday, are expected to drain INR 1.5 trillion to INR 2 trillion, dealers said. A few outliers even expect these outflows to drain around INR 3 trillion from the banking system, dealers said. 

Money market rates were sharply below the repo rate due to sufficient banking system liquidity, dealers said. On Tuesday, the net absorbed liquidity was at INR 2.90 trillion, slightly higher than INR 2.68 trillion Monday, data from RBI showed. Funds parked under RBI's Standing Deposit Facility rose to INR 3.00 trillion Tuesday from INR 2.78 trillion Monday.

"Yesterday (Tuesday), people would have borrowed from TREPs (triparty repo) and call at cheaper rates as rates were trading quite low and would have parked at SDF," a dealer at another state-owned bank said. On Tuesday, the triparty repo rate touched a low of 5.01%, while the call money rate touched a low of 4.50%. "Surplus sure has risen but it is difficult to pin point the reason. Maybe, there were some small inflows like coupon payments." On Tuesday, inflows worth INR 157 billion hit the banking system on account of coupon on central and state government securities.  (Siddhi Chauhan)

End

Edited by Subhojit Sarkar

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