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Informist, Monday, Jul. 14, 2025

By Vidhushi RajPurohit

MUMBAI – Weighted average rates in the money market cooled off significantly Monday as banking system liquidity remained flush with surplus funds and no major scheduled outflows to put strain, dealers said. The Secured Overnight Rupee Rate benchmark, or SORR, was set below the Reserve Bank of India's Standing Deposit Facility rate of 5.25% as the reporting Friday requirements and frenzied reaction to variable rate reverse repo auction subsided. 

"At the current stage, there does not seem to be a high need for funds from any entities. Whatever borrowing is there is majorly for some usual intraday activities," a dealer at a state-owned bank said. "Even after the VRRR auction, banks are in a comfortable position, and even mutual funds have surplus cash, that is why you will see the TREPs (triparty repo rate) is very low."

The one-day call rate settled at 4.90%, down from 5.00% Friday for three-day loans. The weighted average rate was at 5.31%, down from 5.45% on Friday. The tiparty repo rate ended at 5.12%, with the weighted average rate at 5.19%, sharply lower than 5.30% Friday. The benchmark for the call money market – the overnight Mumbai Interbank Offered Rate – was set at 5.38%, down from 5.51% on Friday. The SORR was set at 5.23%, lower than 5.39% Friday.

On Sunday, the RBI net absorbed INR 2.94 trillion from the banking system, slightly higher than the INR 2.90 trillion on Saturday. Owing to low market rates and ample liquidity in the banking system, some traders were expecting the central bank to conduct variable rate reverse repo auctions this week. Post-market hours Monday, the RBI announced a three-day auction for INR 1 trillion Tuesday.

"It looks like there can be more VRRR auctions, because there will also be a buyback auction this week, and the last auction (of VRRR) was also not fully subscribed," a dealer at a private sector bank said. At Friday's seven-day variable rate reverse repo auction, banks offered only INR 1.52 trillion against the notified amount of INR 2.5 trillion.

As the new reporting Friday began Saturday, banks maintained higher-than-required cash balances with the RBI to alleviate the pressure towards the end of the fortnight, dealers said. On Sunday, banks parked INR 9.74 trillion with the RBI, higher than the required amount of INR 9.63 trillion for the current fortnight. "There are enough funds with banks, so they will try to be done with their reserve needs early on, and if there is any crunch later, then there won't be any problem," the dealer at the private sector bank said.

OUTLOOK

* On Tuesday, the one-day call rate may open near RBI's repo rate before the INR 1 trillion, 3-day VRRR auction at 1000-1030 IST.

* 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

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

5.40%--Monday's open for one-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Rates down on abundant liquidity, absence of major outflows

MUMBAI – The interbank call money rate opened below the Reserve Bank of India's repo rate of 5.50% as liquidity surplus remains above INR 3 trillion, dealers said. With no significant outflows expected to take place this week, call money rate is expected to trade in the range of 4.80-5.40%, while tri-party repo rate is seen at 4.70-5.25%, they added. 

"Rates (money market rates) have cooled off significantly (today). In both call and TREPs, demand is very usual, primary dealers are borrowing in call, while some banks are borrowing in TREPs," a dealer at a private sector bank said. "There are no significant outflows this week, VRRR pressure has also subsided over the weekend."

At 0954 IST, the weighted average call rate was at 5.35%, sharply down from 5.51% at the same time on Friday. The triparty repo rate, a market where mutual funds are the primary lenders, was at 5.20% and its weighted average rate was at 5.21%, sharply down from 5.37% at the same time on Friday.

On the liquidity front, market participants don't see any significant drain this week, dealers said. The next significant outflows this month will be goods and services tax which will take place in the fourth week of the month, dealers said. These outflows will drain INR 1.5 trillion to INR 1.7 trillion, dealers said.

During the day, outflows for payment of government securities auctioned on Friday will drain INR 250 billion from the system. Other than this, no other inflows or outflows are scheduled for the day, dealers said. On Friday, the RBI net absorbed INR 3.32 trillion, slightly higher than the INR 3.15 trillion Thursday. Banks maintained a cash balance of INR 9.37 trillion with the RBI, slightly higher than the INR 9.32 trillion maintained Thursday.

As there are no significant outflows this week, some 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. "See, there is a possibility that RBI might come up with a VRRR for two days like they did the previous week," a dealer at a state-owned bank said. "It is very difficult to understand right now what they want to because they have also announced a buyback. It is so confusing." On Friday, the central bank said it will buy back three gilts worth INR 250 billion on Thursday.

However, a few market players feel that the central bank may analyse liquidity conditions and money market rates for two days and then take a decision on conducting variable rate reverse repo auction other than Friday. Market participants widely expect the RBI to rollover the seven-day variable rate reverse repo auction conducted previous week. (Siddhi Chauhan)

End

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

Edited by Saji George Titus

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