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Informist, Thursday, Jul. 3, 2025

By Siddhi Chauhan

MUMBAI – The weighted average rates of call and tri-party repo ended lower Thursday as liquidity surplus in the system touched a three-year high, dealers added. The weighted average call rate moderated closer to the Reserve Bank of India's Standing Deposit Facility of 5.25%, while the weighted average rate for triparty rate fell sharply below the SDF rate.

The one-day call money rate settled at 5.28% Thursday, up from 4.90% Wednesday. The weighted average call rate was at 5.26%, down from 5.27% Wednesday. During the day, the call rate moved in the range of 4.75-5.35%. The tri-party repo rate closed at 5.00% Thursday, down from 5.10% Wednesday. The weighted average tri-party repo rate was at 5.12%, down from 5.14% Wednesday.

On Wednesday, the net liquidity absorbed by the RBI rose to the highest level since Jun. 1, 2022. The RBI net absorbed INR 3.75 trillion from the banking system, significantly higher than INR 3.32 trillion Tuesday, central bank data showed. As per the central bank's data, funds parked with the RBI under the Standing Deposit Facility rose to INR 2.99 trillion Wednesday, up from INR 2.55 trillion Tuesday.

"With such a high liquidity figure and some more inflows scheduled to come on tomorrow (Friday) due to maturity of VRRR, RBI will definitely come with another VRRR today (Thursday)," a dealer at a state-owned bank said. "Rates are already so low, they (RBI) will surely mitigate the impact of such a high liquidity."

Post-market hours on Thursday, the central bank announced a seven-day variable rate reverse repo auction for a notified amount of INR 1 trillion. The auction will be conducted on Friday. This was widely expected as the reverse repo auctioned last week is maturing on Friday. 

The RBI conducted had on Jun. 27 conducted a seven-day variable rate reverse repo auction of INR 1 trillion and accepted all the bids worth INR 849.75 billion. The central bank set a cut-off rate of 5.49% while the weighted average rate was set at 5.45%.

Despite the surplus rising well above the 1% net demand time liabilities, the weighted average call rates did not see a sharp fall as banks engaged in arbitrage trading in order to earn a good spread, dealers said. Due to the spread trade, market volumes did not fall sharply despite the abundant liquidity, dealers said. 

"Volumes are still high even with a huge surplus because many banks are engaging in spread trade," a dealer at a private sector bank said. "The rates in TREPS are comparatively lower than call. By borrowing in TREPS and lending in call, banks are getting a decent spread."  

The call money market volumes were INR 172.40 billion Thursday, slightly up from INR 169.24 billion Wednesday. The overall market volumes were at INR 6.28 trillion, broadly unchanged from INR 6.36 trillion Wednesday. Volumes in the widely participated tri-party repo market were at INR 4.16 trillion, down from INR 4.29 trillion Wednesday. 

OUTLOOK

* On Friday, the three-day call rate may open slightly below the RBI's repo rate due to comfortable liquidity.

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

CALL RATE

5.28%--Thursday's close for one-day loans

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

4.90%--Wednesday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate as liquidity surplus over 3-yr high; VRRR likely

MUMBAI – The inter-bank call money market rate opened below the Reserve Bank of India's repo rate of 5.50% Thursday as the liquidity surplus jumped to an over-three-year high, dealers said. They added that demand for funds was strongly down after inflows from the government's month-end spending and do not expect any significant outflows for the day which, in turn, will likely keep the money market rates on the lower side, below 5.30%, they said. 

"I expect money market rates to stay steady throughout the day, with the tri-party repo rate maximum reaching 5.50%," a dealer at a private sector bank said. "The call rate is likely to remain flat due to the absence of significant periodic outflows."

The one-day call money rate opened at 5.30% Thursday and, at 1000 IST, the weighted average call rate was also at the same level. The triparty repo market, where mutual funds are major lenders, opened at 5.18%, below the RBI's Standing Deposit Facility rate of 5.25%. At 1000 IST, the triparty repo rate was at 5.14%, with the weighted average triparty repo rate also at the same level.  

On Wednesday, the net liquidity absorbed by the RBI rose to the highest level since Jun. 1, 2022. The RBI net absorbed INR 3.75 trillion from the banking system, significantly higher than INR 3.32 trillion Tuesday, central bank data showed. As per the central bank's data, funds parked with the RBI under the Standing Deposit Facility rose to INR 2.99 trillion Wednesday, up from INR 2.55 trillion Tuesday. Meanwhile, banks' cash balance maintained with the central bank reduced on Thursday and stood at INR 9.65 trillion from INR 10.07 trillion. Dealers said banks' maintained higher cash reserves earlier this week to meet the end-of-month disbursals to avoid last-minute chaos.

Traders expect the RBI to announce a variable rate reverse repo auction for Friday, given the current liquidity figure and absence of significant outflows. "I think, the RBI may come with VRRR auction to manage liquidity in the (banking) system, considering the stable liquidity conditions and it is likely to be a seven-day VRRR auction," the dealer quoted above said. 

Last week on Jun. 27, RBI conducted a seven-day variable rate reverse repo auction of INR 1 trillion and 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%. The auction is due for reversal on Friday. 

Traders were of the view that the central bank will likely conduct another auction of a similar tenure for INR 1.5 trillion to INR 2.00 trillion. Banks will likely bid aggressively at the auction to deploy their excess funds at 5.49%, as the money market rates continue to trade near the RBI's Standing Deposit Facility rate, dealers said.  End

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

Edited by Saji George Titus

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