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Informist, Friday, Jul. 11, 2025

By Siddhi Chauhan 

MUMBAI – Weighted average money market rates jumped Friday on panic borrowing from market participants due to a larger-than-expected quantum of variable rate reverse repo auction, conducted by the Reserve Bank of India, dealers said. Reporting Friday requirements also drove money market rates high, they added. 

After touching the day's high of 5.55%, the three-day call money rate settled at 5.00% Friday, up from 4.90% Thursday. The weighted average call settled at 5.45% Friday, sharply up from 5.36% Thursday, while the weighted average rate for the tri-party repo market settled at 5.30%, up from 5.25% Thursday. During the day, the call rate moved in the range of 4.75-5.55%. After touching the day's high of 5.49%, the tri-party repo rate closed at 5.10% and moved in the range of 5.00-5.49%. 

"In the first hour, primary dealerships and NBFCs (non-banking financial companies) borrowed aggressively through call and CROMs (Clearcorp Repo Order Matching System) because they thought rates will rise more after VRRR," a dealer at a private sector bank said. "Apart from VRRR, reporting Friday was also there so they are of the view that rates might not cool off even after VRRR." The panic to borrow funds ahead of variable rate reverse repo was such that a few primary dealers were seen pledging state bond security at rates as high as 5.60% in the Clearcorp Repo Order Matching System, dealers said. 

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 maintained a cash balance of INR 9.32 trillion Thursday with the RBI, higher than the INR 9.21 trillion maintained Wednesday, RBI data showed. Of the 13 days this fortnight, banks have maintained an excess cash balance for six days, data from the RBI showed. On Thursday, the RBI net absorbed INR 3.15 trillion, slightly lower than the INR 3.27 trillion Wednesday.

At the seven-day variable rate reverse repo auction held during the day, the central bank got bids worth INR 1.52 trillion, which was fully accepted by the central bank at a cut-off 5.49%. This was sharply below the market participants' expectations, which was around INR 1.80 trillion.

"Why will people lock in funds at 5.49%, when at the same time the rates in the overnight market were above the repo rate (of 5.50%)," a dealer at a state-owned bank said. "If you see the call had touched a high of 5.55%, while the TREPs rate had reached 5.49%. CROMs rate also was at a high of 5.60%. Some banks also held back due to fortnightly requirements." Some banks also hesitated to park funds at the auction as they did not want to lock in their funds for such a long maturity, dealers said.

In the next week, due to lack of significant outflows, weighted average call rate is expected to fall sharply below the repo rate, dealers said. Consequently, market participants expect the central bank to come up with a two-day variable rate reverse repo operation on Wednesday, dealers said. The quantum of the potential operation is expected to be around INR 1 trillion, dealers said. The next significant outflows will take place in the third week of the month for goods and services tax, which would likely drain INR 1.5 trillion to INR 1.7 trillion, dealers said.

OUTLOOK

* Money market is shut on Saturday. On Monday, the one-day call rate may open slightly below the RBI's repo rate on comfortable liquidity.

* During the day, the call rate is seen in a range of 4.75-5.40% and the tri-party repo rate in a range of 4.70-5.30%.

CALL RATE

5.00%--Friday's close for three-day loans

5.40%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Money market rates surge on higher-than-view VRRR auction amount

MUMBAI - The Reserve Bank of India's higher-than-expected INR 2.5 trillion announcement for its seven-day variable rate reverse repo operation Friday caused interbank call money rates to open at 5.55%, above the RBI's repo rate of 5.50%. The opening level was over one-month high. After market hours Thursday, the RBI announced INR 2.5-trillion variable rate reverse repo auction. While traders had anticipated the central bank to conduct an auction, they had expected the notified amount to range between INR 1.5 trillion and INR 2 trillion, dealers said.

It is usual for rates to remain slightly higher Friday as lenders charge higher interest for three-day loans, dealers said. However, there was an additional strain caused by the large quantum for the reverse repo auction, they added. 

At 0943 IST, the three-day call money rate was at 5.55%, significantly higher from Thursday's close of 4.90% for one-day loans while the weighted average rate was at 5.51%. The call rate was dealt above the repo rate for the first time since the policy rate cut in June when the RBI's Monetary Policy Committee slashed the rates by 50 basis points. The triparty repo rate, a market where mutual funds are the primary lenders, opened at 5.40% and its weighted average rate was at 5.38%. 

Money market rates were elevated also on account of banks' funding requirements as the current reporting fortnight ends Friday, dealers said. "I think, higher-than-expected notified amount pushed the borrowing costs as borrowers need funds to complete their Friday requirements too, let's see what comes in the rest of the day." a dealer at a state-owned bank said.

On Thursday, the RBI net absorbed INR 3.15 trillion, slightly lower than the INR 3.27 trillion Wednesday. Banks maintained a cash balance of INR 9.32 trillion with the RBI, higher than the INR 9.21 trillion maintained Wednesday, RBI data showed. For the current fortnight ending Friday, the daily average cash reserve requirement is INR 9.52 trillion.

According to a median of an Informist poll of nine market participants, the RBI is likely to set a cut-off of 5.49% at Friday's seven-day variable rate reverse repo auction for a notified amount of INR 2.50 trillion. Traders were of the view that the auction will likely not be fully subscribed owing to the longer-duration of the auction, dealers said. The estimated subscription amount was in the range of INR 1.7 trillion to INR 2.3 trillion with the median estimate at INR 1.80 trillion, according to an Informist poll. The reversal of the seven-day variable rate reverse repo will take place on Jul. 18. 

Traders were also of the view that the RBI can come up with an overnight or three-day variable rate reverse repo auction, if the offers received at Friday's auction are sharply below the notified quantum. However, some dealers also said that since the market rates are trading around the repo rate, the RBI can skip another auction Friday and gauge the market rates further. (Vaishali Tyagi)

End

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

Edited by Deepshikha Bhardwaj

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