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Informist, Monday, Jun. 23, 2025

By Siddhi Chauhan

MUMBAI – The interbank call money rate ended at the Reserve Bank of India's Standing Deposit Facility rate of 5.25% on Monday despite the goods and services tax outflows, dealers said. Goods and services tax outflows of over INR 1 trillion did not translate to a rise in money market rates as liquidity surplus remained above 1% of net demand and time liabilities, they said. 

"Money market rates won't be impacted, it will instead remain at the same level unless the surplus falls to or below INR 1 trillion, which is unlikely to happen this month," a dealer at a state-owned bank said. "In a few days, inflows from government month-end spending will also start, which can easily bring the liquidity to INR 3 trillion surplus."

The one-day call money rate closed at 5.25%, against 4.90% on Saturday for two-day loans. The weighted average call rate was 5.27%. During the day, the call rate moved in the range of 4.75-5.35%. The tri-party repo rate moved in a range of 5.01-5.27% and closed at 5.10%. 

Outflows for goods and services tax likely drained around INR 1.5 trillion to INR 2 trillion from the banking system over two days, dealers said. As per the latest data from the RBI, the net liquidity absorbed by the central bank--a proxy for systemic liquidity surplus--stood at INR 2.46 trillion Sunday, similar to Saturday but fell from INR 2.94 trillion on Friday.

"The overall impact of GST (goods and services tax) outflows is around INR 600 billion on the liquidity if we compare it with Thursday. But banks have drastically reduced the SDF amount on Saturday," a dealer said. "If you want to check the overall impact of GST outflows, you will have to look at the fall in both SDF and liquidity." 

According to RBI data, funds parked under the standing deposit facility on Saturday were at INR 2.35 trillion, sharply down from INR 3.04 trillion parked on Friday. A major tranche of goods and services tax outflows had taken place on Saturday, dealers said.

Money market trading activity was normal, with mutual funds being the major lenders in the triparty repo market, dealers said. Banks were mostly on the lending side in the call market, and primary dealerships were on the borrowing side, dealers said.  Apart from primary dealers, banks also borrowed through the term money market to cater to their long-term demand amidst high credit offtake, dealers said.

Going forward, market participants expect the banking system to be flush with liquidity as inflows for government month-end spending are expected to start by the end of this week, dealers said. These inflows are likely to add around INR 1.5 trillion to INR 2.0 trillion to the banking system. With this significant inflow, money market participants anticipate the RBI's next move, dealers said. 

"RBI had said that they would want the operating rates to anchor around repo rate (of 5.50%), which doesn't seem to happen with such a huge amount of liquidity," a dealer at a private sector bank said. "Even with all these outflows, the rates have not hovered around repo. Let's see what they will do now."

OUTLOOK

* On Tuesday, the one-day call rate is likely to open below the RBI's repo rate on comfortable liquidity conditions.

* During the day, the call rate is seen in a range of 4.80-5.35% and the tri-party repo rate in a range of 4.70-5.25%.

CALL RATE

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

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

4.90%--Saturday's close for two-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate; liquidity in surplus despite GST outflows

MUMBAI – The interbank call money rate opened below the Reserve Bank of India's repo rate of 5.50% on Monday, driven by comfortable liquidity in the banking system and low demand for funds from banks, dealers said. Despite Goods and Services Tax outflows, liquidity remained in surplus, exerting minimal pressure on money market rates. "Even after GST outflows, I don't see the rates rising beyond the current levels because we have good amount of liquidity," a dealer at a state-owned bank said. 

The one-day call money rate opened at 5.30% Monday and, at 1000 IST, the weighted average call rate was at 5.30% as well. The triparty repo rate, where mutual funds are major lenders, opened at 5.24%, below the RBI's Standing Deposit Facility rate of 5.25%. At 1000 IST, the triparty repo rate was at 5.23%, with the weighted average triparty repo rate at 5.24%. 

On Friday, RBI's net absorbed liquidity was at INR 2.94 trillion, slightly lower than INR 3.14 trillion on Thursday. The comfortable liquidity was also visible as the cash balance maintained by banks with the RBI on Friday remained largely unchanged from Thursday at INR 9.47 trillion, data from the central bank showed. The surplus fell due to outflows on account of GST payments on Friday, dealers said. However, the impact of these outflows was muted as only a small portion of these outflows occurred on Friday, a dealer said. "A majority of GST outflows happened on Saturday, the actual impact of these outflows will be seen when the numbers are updated," a dealer at another state-owned bank said. "No significant impact on liquidity is expected despite GST outflows because the liquidity is very comfortable."

"Look at the current liquidity condition, we have high surplus and the market is quite comfortable," the dealer said. Market participants expect minimal pressure on rates in the near term. "We don't think today (Monday) there will be much pressure on rates, but in a day or two, with credit disbursement of around INR 1.0 trillion we might see a slight rise in rates, yet I'am not seeing the call rate rising above 5.35% and tri-party repo rates rising beyond 5.25%," the dealer quoted above said. (Vaishali Tyagi )  End

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

Edited by Saji George Titus

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