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Informist, Friday, Jul. 4, 2025

By Siddhi Chauhan

MUMBAI – Weighted average money market rates inched up Friday even as the liquidity in the banking system rose above the INR 4 trillion mark, dealers said. In the first half of trade, an upward pressure was seen on rates due to variable rate reverse repo operation conducted during the day, they added.

The three-day call money rate settled at 4.75% Friday, down from 5.28% Thursday. The weighted average call rate was at 5.29%, up from 5.26% Thursday. During the day, the call rate moved in the range of 4.75-5.35%. The tri-party repo rate closed at 5.00% unchanged from Friday. The weighted average tri-party repo rate was at 5.18%, up from 5.12% Thursday.

"Since everyone had enough funds they were borrowing at lower rates in order to earn a good spread," a dealer at a state-owned bank said. "Banks were doing this because they thought by borrowing through call or treps they could get a good spread by deploying the same funds at the VRRR auction. VRRR auction will surely be above 5.40%." Both call and tri-party repo rate were at the day's low of 4.75%.

At the seven-day variable rate reverse repo auction of INR 1 trillion, the central bank got bids worth INR 1.71 trillion. The bank accepted INR 1 trillion, setting the cut-off at 5.47% and weighted average rate of 5.44%.

Due to aggressive spread trading having taken place during the day, money market participants expect banks to park funds under the Standing Deposit Facility, dealers said. As per data from the Reserve Bank of India's website, funds parked under the Standing Deposit Facility Thursday stood at INR 3.27 trillion from INR 2.99 trillion Wednesday. 

This also kept money market volumes slightly higher from Thursday. The call money market volumes were INR 151.84 billion Friday, down from INR 172.40 billion Thursday. The overall market volume was at INR 6.32 trillion, up from INR 6.28 trillion Thursday. Volume in the widely participated tri-party repo market was at INR 4.18 trillion, slightly up from INR 4.16 trillion Thursday. 

On the liquidity front, the RBI net absorbed liquidity Thursday was at INR 4.04 trillion, the highest since May 19, 2022, the central bank data showed. The figure was also higher than Wednesday's amount when the central bank absorbed INR 3.75 trillion from the banking system. The rise in the surplus figure was largely on account of the month-end inflows from the government's payment for salary and pension which is likely to have been in the range of INR 1.75 trillion to INR 2.00 trillion, dealers said.

While some market participants speculated inflows from government month-end spending to have been higher than market expectations, a few refuted market speculation, dealers said. "It seems that month-end spending was higher than expectations. This is because the government has just received surplus, so they will increase their spending gradually."

OUTLOOK

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

* Volume is expected to be lower which is generally the case for working Saturdays.

* 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

4.75%--Friday's close for three-day loans

5.30%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate as systemic liquidity surpasses INR 4 trillion

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 5.50% Friday, as liquidity surplus in the banking system surpassed INR 4 trillion Thursday after the remainder of month-end inflows hit the system, dealers said. Traders expect the rates to drop below the RBI's Standing Deposit Facility rate of 5.25% on account of ample funds in the banking system, they said.

At 0915 IST, the three-day call money rate was at 5.30%, against 5.28% at close on Thursday for one-day loans. The weighted average call money rate was also at the same level.

The RBI net absorbed INR 4.04 trillion from the banking system on Thursday, the highest since May 19, 2022, the central bank data showed. The figure was also higher than Wednesday's amount when the central bank absorbed INR 3.75 trillion from the banking system. The rise in the surplus figure was largely on account of the month-end inflows from the government's payment for salary and pension which is likely to have been in the range of INR 1.75 trillion to INR 2.00 trillion, dealers said.

"There was nothing else scheduled, this was all because of government's spending which is usual for every month," a dealer at a private sector bank said. 

Traders are of the view that the rise in liquidity is also on account of some arbitrage trade where banks borrowed funds from the triparty repo rate market and parked it at the RBI's Standing Deposit Facility. "The low was around 5.05% at TREPs (triparty repo rate) market (on Thursday) when some banks took funds from the market and then put it at the SDF (Standing Deposit Facility) to get good spread," a dealer at a state-owned bank said.

Traders are of the view that banks who are borrowing right now in the money market will likely use the funds to park it with the RBI at the variable rate reverse repo auction at 1000-1030 IST. On Thursday, post market hours, the RBI announced a seven-day variable rate reverse repo auction of INR 1 trillion.

The announcement was in line with market's expectation and traders expect the auction to be fully subscribed. The estimates for the cut-off rate at the auction range from 5.47-5.49%, with the median at 5.48%, according to an Informist poll. Some traders also expect the RBI to announce another short-tenure variable rate reverse repo auction if total bids for the seven-day auction surpass INR 1 trillion, dealers said.  End

Edited by Deepshikha Bhardwaj

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