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Informist, Wednesday, Jul. 9, 2025

By Siddhi Chauhan and Vidhushi RajPurohit

MUMBAI – The weighted average rates for both call money and tri-party repo market rose sharply Wednesday due to the variable rate reverse repo operation conducted by the Reserve Bank of India, dealers said. Consequently, the overnight Mumbai Interbank Offered Rate, which was trading near the Standing Deposit Facility rate of 5.25% so far this week, was fixed at 5.36%, the highest level since Jun. 30. 

The one-day call money rate settled at 5.00% Wednesday, slightly up from 4.90% Tuesday. The weighted average call rate was at 5.32, sharply up from 5.26% on Tuesday, while the weighted average rate for the triparty money market was 5.29%, sharply up from 5.13% Tuesday. During the day, the call rate moved in the range of 4.80-5.45%. The tri-party repo rate closed at 5.27% and moved in the range of 5.23-5.35%. 

"Rates have risen because of VRRR auction which was conducted today (Wednesday)," a dealer at a state-owned bank said. "Many banks would have parked funds at VRRR, that is why they are borrowing from the overnight market." Even in the first hour of trade Wednesday, the call rates had reached a peak of 5.40%, while the triparty rates touched a high 5.30% as traders wanted to earn an arbitrage while parking at the variable rate reverse auction, dealers said. 

Most traders were expecting aggressive bidding by banks at the auction on account of high surplus liquidity, with the estimated cut-off rates ranging from 5.44-5.47%, according to an Informist poll. However, the offers received by the RBI were at INR 973.15 billion, lower than the notified amount of INR 1 trillion. RBI accepted all the offers and set the cut-off at 5.49%. Traders reasoned that banks might have hesitated somewhat due to the upcoming reporting Friday requirements. However, there were some aggressive offers as well, which was evident from the weighted average cut-off being at 5.46%. 

As per the prudential requirements, banks are required to maintain an average cash balance with the central bank. For the fortnight ending Friday, banks are supposed to maintain an average of INR 9.52 trillion. Banks Tuesday maintained a cash balance of INR 9.39 trillion with the RBI, data from the central bank showed. Of the 11 days this fortnight, banks have maintained an excess cash balance for five days, data from RBI showed. The RBI Tuesday net absorbed INR 3.07 trillion of liquidity from the banking system, down from INR 3.44 trillion Monday.

With above INR 1.9 trillion worth of potential inflows set to hit the system on Friday on account of maturity of two variable rate reverse repo operations, market expects RBI to announce another such operation possibly above INR 1.5 trillion or INR 2 trillion, dealers said. The seven-day variable rate reverse repo auction which was conducted last week will mature on Friday. This would add inflows of INR 1 trillion into the banking system.

"We can't really predict what the RBI is thinking, so it is hard to predict what kind of amount there is at the next auction if it announces," a dealer at a private sector bank said. "Looking at the current liquidity it will make sense for it to hold INR-1.5-trillion worth auction, but then banks will be reluctant if it is a long-term auction." 

OUTLOOK

* On Thursday, 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

5.00%--Wednesday's close for one-day loans

5.35%--Wednesday's open for one-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo on surplus liquidity; TREPS above SDF on VRRR panic

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. However, the triparty repo market rate opened above the RBI's Standing Deposit Facility rate of 5.25% on account of some panic over the central bank's announcement of a two-day variable rate reverse repo auction post market hours on Tuesday, they said. 

"Traders are borrowing money from TREPs to lend in VRRR and it is just a two-day so they are not worried that money will be stuck for long, and they will put money in VRRR to earn this arbitrage,"  a dealer at a private sector bank said. However, some dealers said the rates were high due to a brief frenzy as the auction announcement came after market hours and rate are likely to inch lower later in the day.  

The one-day call money rate Tuesday opened at 5.35%. At 0954 IST, the weighted average call rate was at 5.36%. The triparty repo rate, a market where mutual funds are the primary lenders, opened at 5.30% and its weighted average rate was at 5.29%.

The RBI Tuesday net absorbed INR 3.07 trillion of liquidity from the banking system, down from INR 3.44 trillion Monday. Banks Tuesday maintained a cash balance of INR 9.39 trillion with the RBI, data from the central bank showed. 

As the liquidity surplus in the banking system has remained above INR 3 trillion since the start of the month, money market rates were trading below the repo rate for the most part with the weighted average rates remaining around the RBI's Standing Deposit Facility rate. Traders were largely expecting the RBI to conduct variable-rate reverse repo auctions considering the excessive surplus and low rates.

In line with the expectations, the RBI announced a two-day auction for INR 1 trillion to be held Wednesday. Traders expect the auction to be fully subscribed. The auction will be reversed Friday, when another seven-day variable rate reverse repo auction is due for reversal. 

Traders now expect the RBI to likely conduct either a seven-day or a 14-day variable rate reverse repo auction Friday to roll over the previous auctions' quantum, dealers said. The expected quantum for further auctions is around INR 1.5 trillion to INR 2 trillion, they added, as INR 2 trillion worth of auction will reverse Friday. However, some traders also said the RBI will likely gauge the market conditions Thursday and Friday and only then announce further auctions.  End

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

Edited by Deepshikha Bhardwaj

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