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Informist, Tuesday, Jul. 8, 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% Tuesday due to ample liquidity in the banking system, dealers said. Even with abundant liquidity, some upward pressure on tri-party repo rates was seen in the second half of the day on looming fear of RBI announcing another variable rate reverse repo in the coming days, a few dealers said. 

The one-day call money rate settled at 4.90% Tuesday, unchanged from Monday. The weighted average call rate was at 5.26%, unchanged from Monday, while the weighted average rate for the triparty money market was at 5.13%, up from 5.11% Monday. During the day, the call rate moved in the range of 4.50-5.35%. The tri-party repo rate closed at 5.27% and moved in the range of 5.09-5.27%. 

The RBI Monday net absorbed liquidity from the banking system INR 3.44 trillion, down from INR 4.09 trillion on Sunday. Market participants attributed the fall in surplus to be an outcome of payments for tax deducted at source and excise duty. These outflows likely drained around INR 500 billion from the banking system in two tranches, dealers said. Apart from this, payments for the government security auction also drained INR 320 billion on Monday. 

Banks Monday maintained a cash balance of INR 9.31 trillion with the RBI, data from the central bank showed. The average daily cash reserve requirement for the current fortnight ending Friday is INR 9.52 trillion. 

With all significant outflows scheduled for the week completed, there was little pressure on liquidity and money market rates Tuesday. As a result, market had expected call money and tri-party repo market rates to cool down in the second half of trade. "The call rates are same, nothing has changed there because there are no significant outflows in the coming days," a dealer at a private sector-bank said. "But, tri-party repo rates have started to rise since the second half which should not have happened. Everyone was expecting a fall in rates only," a dealer at a private sector-bank said. 

However, expectations of more variable rate reverse repo auctions resulted tri-party repo rates to rise, dealers said. The next significant outflows will goods and services tax which will likely start in the third week of the month, dealers said.

"I feel the market is preparing itself for VRRRs. See, the chances of a seven-day VRRR this Friday to rollover the existing one has already been factored by the market," a dealer at a state-owned bank said. "But now since the rates are near the SDF instead of repo, everyone expect either an additional three-day or daily VRRRs from the RBI."

Post market hours on Tuesday, the central bank announced that it would conduct a two-day variable rate reverse repo auction for a notified amount of INR 1 trillion at 1000-1030 IST on Wednesday, RBI press release said. The auction will be reversed on Friday.

Last week 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%.

OUTLOOK

* On Wednesday, 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%--Tuesday's close for one-day loans

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call:Ample liquidity in banking system keeps call rate below repo rate

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 5.50% amid ample liquidity in the banking system, dealers said. Money market rates are expected to stay below the repo rate throughout the day, as no major outflows are scheduled for the day, they added.

The one-day call money rate Tuesday opened at 5.30%. At 0954 IST, the weighted average call rate was at 5.29%. The triparty repo rate, a market where mutual funds are the primary lenders, opened at 5.17%, below the RBI's Standing Deposit Facility rate of 5.25%. At 0954 IST, both the triparty repo rate and its weighted average were at 5.12%.

Dealers said that on Monday, outflows related to tax deducted at source and excise duty led to a reduction in the systemic liquidity surplus. These outflows were estimated to drain around INR 600 billion from the banking system. In addition, there were outflows of INR 320 billion for payments toward government securities auctioned on Friday. Despite these outflows, market players did not anticipate significant upward pressure on money market rates as the liquidity surplus, as indicated by the RBI's net absorption of funds, still remained above INR 3 trillion.

The RBI Monday net absorbed from the banking system INR 3.44 trillion, down from INR 4.09 trillion on Sunday. Banks Monday maintained a cash balance of INR 9.31 trillion with the RBI, data from the central bank showed. The average daily cash reserve requirement for the current fortnight ending Friday is INR 9.52 trillion.

"So, I think the impact of TDS and excise duty payments will be limited whatever payment was there it has already been made, as it usually is by the 7th of the month. However, even if few people may be left to pay these dues today (Tuesday) will result in single-digit outflows that won't have a substantial effect on the system," a dealer at a private sector bank said. "Apart from this, I don't see any major outflow which will make any impact on liquidity."

The current liquidity scenario would not exert any pressure on rates, the dealers said. The money market rates will remain in the same range until the RBI comes up with a major operation to manage the liquidity. Moreover, no significant borrowing requirements are seen from any entity in the upcoming days, they added.  (Vidhushi RajPurohit) End

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

Edited by Deepshikha Bhardwaj

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