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Informist, Thursday, Jul. 10, 2025

By Vidhushi RajPurohit

MUMBAI – The Reserve Bank of India's decision to hold mid-week variable rate reverse repo auction on Wednesday was seen as a way of anchoring money market rates above the Standing Deposit Facility rate of 5.25%. In addition to the call rate, the newly introduced Secured Overnight Rupee Rate benchmark, or SORR, also rose above the SDF rate post the auction after initial fixings were well below 5.25%.

Following Wednesday's auction in which banks parked INR 973.15 billion with the central bank, both benchmark rates rose. The overnight Mumbai Interbank Offered Rate was set at 5.29% on Tuesday, and the rate was set slightly higher at 5.36% Wednesday and Thursday. The SORR, which was first set Monday, was below the SDF rate at 5.16% and 5.15%, respectively, for the first two days. After the VRRR announcement, the rate was set above the SDF rate at 5.32% Wednesday and 5.29% Thursday.

For most of July, the weighted average call rate--the operating target of monetary policy-–had also fallen below 5.25% as the surplus liquidity in the banking system, as indicated by the RBI's net absorption of funds from the banking system, has been above INR 3 trillion. Now, traders are also tracking the new collateralised benchmark, though they said the RBI's focus may still be on the call rate for now. The overnight Mumbai Interbank Outright Rate – the benchmark for the uncollateralised market – was set at 5.36% on Wednesday and Thursday, up from 5.29% Tuesday.

"It will be too soon to say that RBI's VRRR auction was to target SORR when it has not even been a week since its introduction," a dealer at a state-owned bank said. "They will probably look at the rates for a month or two before keeping it as a focus for their operations." 

Compared to the MIBOR, the SORR is seen as the more accurate representation of the market conditions as its computation is based on all basket repo and triparty repo trades, dealers said. This captures over 95% of overnight money market volumes, compared with only around 3% for the call market. The MIBOR is set on the basis of the overnight uncollateralised call market rates within the first hour of trading.

"It (SORR) is collateralised, plus it takes into account three hours of trading before publishing the rates so there is a better clarity there," a dealer at a private sector bank said. The SORR is calculated from triparty repo and market repo deals between 0900 IST and 1200 IST, and published at 1245 IST. Financial Benchmarks India Ltd. had introduced the methodology for the computation of SORR and published the rate from Monday.

In October, a committee set up to review the MIBOR benchmark suggested that Financial Benchmarks India create a new overnight market benchmark based on secured money market rates. In response to the recommendation, the RBI at the December monetary policy review meeting proposed to introduce the new SORR benchmark with the intention of expanding the interest rate derivative market and improving the credibility of interest rate benchmarks. 

"It is still very new and right now the market is so volatile with all these VRRR auctions, so once there is some stability then maybe we can gauge the rates better," the dealer at the state-owned bank said.

Currently, the overnight MIBOR serves as a benchmark rate for call money market, floating rate notes, corporate debentures, term deposits, interest rate swaps, and forward rate agreements. Traders were of the view that the SORR would replace MIBOR as the new benchmark but the transition will still take at least a few more months.  End

Edited by Tanima Banerjee

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