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Informist, Friday, Jun. 27, 2025

By Siddhi Chauhan

MUMBAI – The interbank call rate ended below the Reserve Bank of India's Standing Deposit Facility rate of 5.25% as demand for funds cooled in the second half of the trade on Friday, dealers said. In the initial trading hours, for the first time since the 50-basis-points rate cut at the RBI's June monetary policy meeting, the money market rates rose above the repo rate 5.50%. 

"Both call and TREPS (tri-party repo rate) were quite high in the first half because of a lot of factors," a dealer at a state-owned bank said. "There were quarter end requirements to begin with, then today is reporting Friday as well. VRRR also had an impact on rates, and then there were two big IPOs (initial public offering)."

After rising to an intraday high of 5.60% Friday, the three-day call rate settled at 5.05%, down from 5.30% for one-day loans Thursday. The weighted average call rate was 5.38%, sharply higher than 5.27% Thursday. During the day, the call rate moved in the range of 4.75-5.60%. The tri-party repo rate, which touched an intraday high of 5.72%, closed at 5.50% Friday, sharply up from 5.05% Thursday. The weighted average tri-party repo rate ended at 5.42%, sharply up from 5.25% Thursday.

As per the prudential norms, in the fortnight ending this Friday, banks were required to maintain an average of INR 9.54 trillion. According to the RBI data, banks' cash balances with the central bank exceeded for five of the 13 days in this fortnight. As per the RBI data, cash balance maintained with the central bank on Thursday was at INR 9.36 trillion similar to funds maintained on Wednesday. 

Due to all of these factors, the number of lenders in the money market declined, dealers said. "After the VRRR auction, against bids of INR 3,500 crore (INR 35 billion) we could only see lenders willing to lend INR 2,000 crore (INR 20 billion), a dealer at a state-owned bank said. "So lenders were giving funds at a higher rate." 

At the seven-day variable rate reverse repo auction of INR 1 trillion, the central bank got bids worth INR 849.75 billion which were accepted fully. The central bank set a cut-off rate of 5.49% while the weighted average rate was set at 5.45%. While a few banks were expecting the auction to be fully subscribed citing the excess funds under Standing Deposit Facility, most banks said the participation was along the expected lines, dealers said. As per the latest RBI data, funds parked under the Standing Deposit Facility was at INR 2.80 trillion Thursday, up from INR 2.55 trillion Wednesday. 

"Many banks hesitated from participating aggressively at the VRRR auction because of the quarter end. They don't want to block their funds for seven days especially when the time is overlapping with quarter end," a dealer at a private sector bank said. "Also there were two large IPOs today (Friday), though it won't have an impact on liquidity but rates will obviously be under pressure."

On Monday, inflows from government month-end spending, which are expected to add around INR 1.5 trillion to INR 2.0 trillion, are likely to offset the impact of credit offtake on money market rates, dealers said. 

OUTLOOK

* Call market shut on Saturday. On Monday, the one-day call rate may open slightly below the RBI's repo rate due to quarter end demand.

* During the day, the call rate is seen in a range of 4.90-5.40% and the tri-party repo rate in a range of 4.80-5.30%.

CALL RATE

5.05%--Friday's close for three-day loans

5.40%--Friday's open for three-day loans

5.30%--Thursday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo on ample liquidity, varied views on VRRR subscription

MUMBAI – The interbank call money rate opened below the Reserve Bank of India's repo rate of 5.50% on Friday due to comfortable liquidity, dealers said. Despite opening below repo rate, the call rate was still higher than the previous day's opening level due to quarter-end and reporting Friday needs, they said. Market participants expect the variable rate reverse repo auction conducted at 1000-1030 IST to push rates higher.

The three-day call money rate opened at 5.40% Friday, and at 1022 IST was the same as the weighted average call rate. The triparty repo rate, where mutual funds are major lenders, opened at the RBI's Standing Deposit Facility rate of 5.25%. At 1022 IST, the triparty repo rate was at 5.40%. The weighted average triparty repo rate was at 5.33% at the same time.

Post market hours on Tuesday, RBI had announced that it will conduct a variable rate reverse repo auction on Friday for INR 1 trillion. According to Informist Poll of six banks, RBI is likely to set a cut-off of 5.49% at the seven-day variable rate reverse repo auction.  

Traders have varying views on the subscription amount for the RBI's VRRR auction. "I think VRRR will see only half the subscription because banks won't prefer blocking their funds for seven days, especially at a time when we are seeing quarter end pressure," a dealer at a private-sector bank said. "If the tenure would have been overnight, we could have seen good participation." 

However, a few market participants showed confidence expecting a full subscription, citing ample liquidity in the system. "I think that the VRRR auction should be fully subscribed because if you see daily more than INR 2 trillion are getting parked under SDF, which indicates that we have good liquidity," a dealer at state-owned bank said. "Also inflows will also be there, so I think it would be managed." As per the latest RBI data, funds parked under the Standing Deposit Facility was at INR 2.80 trillion Thursday from INR 2.55 trillion Wednesday. 

After the variable rate reverse repo auction, the call money rates are expected to touch the repo rate of 5.50%, while tri-party repo rates are expected to trade near the repo rate, dealers said. Traders said the impact of the reverse repo auction on money market rates will be offset by an inflow of on account of government spending, dealers said. "Quarter-end demand started impacting liquidity from Thursday, and while it may not significantly affect money market rates, it has marginally reduced liquidity in the banking system," dealers said. "We expect this month-end spending and quarter-end demand to continue today (Friday), which will slightly push the rates money market rates higher.

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 2.71 trillion on Thursday, up from INR 2.48 trillion Wednesday.  End

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

Edited by Subhojit Sarkar

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