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Informist, Tuesday, Jul. 15, 2025

By Vidhushi RajPurohit

MUMBAI – The weighted average money market rates climbed higher Tuesday as the Reserve Bank of India held a three-day variable rate reverse repo auction for INR 1 trillion, dealers said. The liquidity management operation pushed up overnight money market benchmark rates, the Secured Overnight Rupee Rate and the Mumbai Interbank Offered Rate, they said. 

The one-day call rate settled at 4.90%, unchanged from the previous day's close, while the weighted average rate rose to 5.38% from 5.31% on Monday. The tiparty repo rate ended at 5.25%, with the weighted average rate at 5.30%, sharply higher than 5.19% Monday. 

The benchmark for the call money market – the overnight Mumbai Interbank Offered Rate – was set at 5.44%, up from 5.38% on the previous day. The SORR was set at 5.33%, up 10 basis points from 5.23% on Monday.

"We were expecting the central bank to roll over the VRRR auction amount on Friday, but this auction was in the middle of the week, so that led market rates to go up," a dealer at a state-owned bank said. "There were no other outflows today (Tuesday)."

In an interview with CNBC-TV18 Tuesday, Reserve Bank of India Governor Sanjay Malhotra said the central bank's effort will be to keep the call money rate near the policy repo rate of 5.50%. The call money rate has to be within the Liquidity Adjustment Facility corridor of 5.25-5.75%, and ideally, the RBI would like it near the policy rate, he said.

The variable rate reverse repo auction was undersubscribed as banks refrained from parking funds with the central bank for three days before the reversal of the seven-day operation, where banks had parked INR 1.52 trillion, they said. At the VRRR auction Tuesday, the central bank accepted the entire INR 574.50 billion offered at a cut-off rate of 5.49%.  

At the time of the auction, the overnight money market rates were around 5.45% which further narrowed arbitrage opportunities for banks and led to lower subscription at the auction, dealers said. "The one-day loan rates were up, so it made sense for banks to lend at (money) market than to lock funds for three days," a dealer at a private sector bank said. 

The volumes in the market also rose slightly Tuesday. Total turnover in the call money market rose to INR 162.48 billion from INR 154.89 billion on the previous day. In the larger triparty repo market, total volume rose to INR 3.95 trillion from INR 3.75 trillion Monday. 

The RBI Monday net absorbed INR 2.61 trillion of liquidity from the banking system, lower than INR 2.94 trillion on Sunday. Dealers cited the increase in cash reserves as the reason for the lower surplus figure. Banks Monday parked INR 10.04 trillion as cash reserves with the central bank, sharply up from INR 9.74 trillion on Sunday, RBI data showed. For the current fortnight, which began Saturday, the average daily cash reserve requirement is INR 9.63 trillion. 

OUTLOOK

* On Wednesday, the one-day call rate may open below the RBI's repo rate due to a lack of major outflows.

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

5.45%--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: Money market rates jump ahead of INR 1-tln VRRR auction

MUMBAI – Money market rates jumped up Tuesday as market participants borrowed aggressively ahead of the three-day variable rate reverse repo auction scheduled during the day, dealers said. "Rates are on the higher side today because of the VRRR auction," a dealer at a state-owned bank said.

"PDs (primary dealers) and some banks are on the borrowing side in call market, a few banks are also borrowing through the TREPS market." Monday, after market hours, the Reserve Bank of India announced a INR 1-trillion variable rate reverse repo operation. The move was widely in line with expectations of market participants.

Market participants had expected another variable rate reverse repo as no significant outflows are scheduled this week that would have resulted in money market rates to fall below the Standing Deposit Facility of 5.25%, dealers said. The next big outflow this month will be for 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.

At 1012 IST, the one-day call rate was at 5.30%, against 4.90% on Monday. The weighted average call rate was 5.45%, sharply up from 5.35% same time Monday. The triparty repo rate, a market where mutual funds are the primary lenders, was 5.30%, up from 5.18% at the same time on Monday. The weighted average rate for tri-party repo was also 5.30%, up from 5.21% at the same time on Monday.

The RBI Monday net absorbed INR 2.61 trillion of liquidity from the banking system, lower than INR 2.94 trillion on Sunday. The banks Monday increased their cash balance with the central bank to INR 10.04 trillion, sharply up from INR 9.74 trillion on Sunday, RBI data showed.

Market participants expect only 80% participation at the three-day variable rate reverse repo auction, according to a poll by Informist. The cut-off rate will likely be set at 5.49%. "I don't think the auction will be aggressive because if banks do park funds at the auction for three days, they won't be left with enough funds," a dealer at a private sector bank said.

"Also, the rates in the overnight market have already reached 5.45%, hardly 4 basis points spread will be left for arbitrage which is not quite appealing." A few participants attributed the tenure to be a reason of less aggressive participation. "I feel that banks would have gone more aggressive had the tenure been one day," a dealer at another state-owned bank said.

Money market rates are expected to cool off during the second half of the day, dealers said.  End

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

Edited by Saji George Titus

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