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Informist, Monday, Jul. 7, 2025

By Siddhi Chauhan

MUMBAI – The interbank call money rate ended sharply below the Reserve Bank of India's Standing Deposit Facility rate of 5.25% as liquidity surplus remained above INR 4 trillion, dealers said. The availability of abundant funds waned demand from market participants, resulting in lower rates in the second half of the trade, they added. 

The one-day call money rate settled at 4.90% Monday against 4.80% for 2-day loans Saturday. The weighted average call rate was at 5.26%, while the weighted average rate for the triparty money market was at 5.11% Monday. During the day, the call rate moved in the range of 4.75-5.35%. The tri-party repo rate closed at 5.26% and moved in the range of 5.00-5.26%. 

On Sunday, the RBI net absorbed INR 4.09 trillion, similar to that of Saturday. The surplus liquidity on Friday was at INR 4.25 trillion, RBI data showed. Some market participants attributed the slight fall in banking system liquidity to outflows likely on Saturday for tax deducted at source and excise duty. 

There were some outflows for tax deducted at source and excise duty on Monday as well, dealers said. These outflows are expected to drain a total of INR 600 billion from the banking system, dealers said. Apart from these, there were outflows of INR 320 billion for payment for the government securities auctioned on Friday. 

Despite these outflows, market players don't see a significant upward pressure on money market rates. "Even if all of these outflows collectively drain around INR 1 trillion today (Monday) from the system, we will still have INR 3 trillion surplus," a dealer at a state-owned bank said. "This will hardly exert any pressure on rates. They will continue to remain in the same range until the RBI does something."

The large liquidity surplus has kept the weighted average money market call rate near the Standing Deposit Facility. With no significant outflows scheduled until the end of July, market participants expect the weighted average call rate to fall below the Standing Deposit Facility rate, dealers said. 

As a result, many market participants anticipate the central bank to announce another variable rate reverse repo auction. "It is given that they (RBI) will rollover the VRRR conducted on Friday, but I feel that they can come up with a shorter-tenure VRRR also," another dealer at a state-owned bank said. "The quantum I feel could be around INR 500 billion."

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

Given the current liquidity conditions, the volumes in the money market were high as traders engaged in spread trades, dealers said. While some traders were engaging in arbitrage trades between call and tri-party money market, others borrowed from tri-party repo market and invested the funds in corporate bond and short-term debt market, dealers said. 

The call money market volumes were INR 170.61 billion Monday while the overall market volume was at INR 6.10 trillion. The volume in the widely participated tri-party repo market was at INR 4.01 trillion. 

OUTLOOK

* On Tuesday, the one-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 4.90-5.40% and the tri-party repo rate in a range of 4.80-5.30%.

CALL RATE

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

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

4.80%--Saturday's close for two-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate as surplus liquidity remains above INR 4 tln

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 5.50%, as liquidity in the banking system remained above INR 4 trillion, dealers said. During the day, money market rates are expected to inch further down due to lack of funding requirements, they said. Traders await the RBI's data on money market operations for the weekend to gauge the current liquidity levels. 

At 0920 IST, the one-day call money rate was at 5.30%, against 4.80% at close on Saturday for two-day loans. The weighted average call money rate was also at the same level. The triparty repo rate was at 5.18%, and the weighted average rate was at 5.15%.

Traders said some individual non-banking financial entities which do not have access to the triparty repo market would likely be tapping the call market to borrow at 5.30%. Once the early funding rush settles, traders expect the call money rate to fall below the RBI's Standing Deposit Facility rate of 5.25%, dealers said. 

On Friday, the RBI net absorbed INR 4.25 trillion from the banking system, higher than Thursday's figure of INR 4.04 trillion, the central bank data showed. The figure was the highest since May 19, 2022. The government's month-end spending brought an inflow of around INR 2 trillion into the banking system and, since there have not been significant outflows, the surplus has been at and above INR 3 trillion for July, dealers said. During the day, tax deducted at source and excise duty payouts are due, and traders have pegged the total outflow at around INR 500 billion. 

"Some outflows for the payment of excise duty were there on Saturday, but today (Monday) we will also see the total payments for TDS (tax deducted at source)," a dealer at a state-owned bank said. "The amount will not have any major impact as outflow of INR 500 billion for the whole system does not cause much strain when surplus is this high."

Banks maintained INR 9.39 trillion with the RBI as cash reserves on Friday, against Thursday's amount of INR 9.57 trillion. The average daily cash reserve requirement for the current fortnight ending on Friday is INR 9.52 trillion. (Vidhushi RajPurohit)End

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

Edited by Saji George Titus

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