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Informist, Wednesday, Jul. 16, 2025

By Vidhushi RajPurohit

MUMBAI – Weighted average money market rates remained up Wednesday as banks parked around INR 2 trillion with the Reserve Bank of India through two variable rate reverse repo auctions, dealers said. Morever, there was also demand for funds from banks for initial public offering which also pushed up the rates, they said.

"Today (Wednesday), there is some borrowing and it is mostly from banks because of IPO," a dealer at a private sector bank said. "There may be some internal requirements too for some banks, but there were no other big outflows."

The one-day call rate setteled at 4.90%, unchanged from the previous day's close. The weighted average call rate was at 5.36%, compared with 5.38% Wednesday. The call rate traded in 4.75-5.40% during the day. The triparty repo rate closed at 5.25% and the weighted average rate was 5.28%.

Wednesday was the last day for the Anthem Bioscience's initial public offering and dealers attributed this to be the reason for increased activity in the money market. Additionally, the central bank's recent variable rate reverse repo auctions also kept the weighed average rates from sliding below the RBI's Standing Deposit Facility rate of 5.25%, dealers said.  

Traders are of the view that the central bank will likely announce another variable rate reverse repo auction for Friday which will be to roll over the INR 2.09-trillion worth of reversal which is due that day. However, traders expect muted offers at the auction on account of the upcoming outflows for the payment of goods and services tax. These outflows will likely drain out INR 1.5 trillion to INR 1.7 trillion from the banking system, dealers said.

Ahead of the upcoming outflow, banks have also maintained higher cash reserves with the RBI to meet their fortnightly requirement, dealers said. The banks Tuesday kept INR 9.94 trillion as cash reserves, higher than the INR 9.63 trillion. For the current fortnight, which began Saturday, the average daily cash reserve requirement is INR 9.63 trillion. 

"Next week there will be large outflows, so banks want to avoid the additional pressure of reserve maintainance. Now they are keeping more than 100% and then next week even if they maintain around 90%, there will not be any issues," a dealer at another private sector bank said. 

OUTLOOK

* On Thursday, 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%--Wednesday's close for one-day loans

5.40%--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 rate on ample liquidity, lack of big outflows this wk

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 5.50% Wednesday on abundant liquidity surplus and absence of significant outflows, dealers said. The absence of any significant outflow this week is expected to keep money market rates anchored. However, a slight upward trend is seen due to initial public offers, they added. 

"Today (Wednesday) is the closing day of Anthem Biosciences's IPO. Though IPOs don't lead to any outflows from the system, it increases the borrowing costs," a dealer at a private bank said. "This could result in money market rates to be slightly higher in initial trade, but it will fall in the second half."

At 0955 IST, the one-day call rate was at 5.40%, against 5.45% on Tuesday. The weighted average call rate was 5.40%, down from 5.45% at the same time Tuesday. The triparty repo rate, a market where mutual funds are the primary lenders, was 5.27%, down from 5.30% at the same time on Tuesday. The weighted average rate for tri-party repo was also 5.26%, down from 5.30% at the same time on Monday.

On the liquidity front, market participants see surplus to sustain at the current levels as no major inflows or outflows are scheduled for this week, 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.

The RBI Tuesday net absorbed INR 3.00 trillion of liquidity from the banking system, higher than INR 2.61 trillion on Monday. The banks Tuesday decreased their cash balance with the central bank to INR 9.94 trillion, sharply down from INR 10.04 trillion on Monday, RBI data showed. The reason for the rise in surplus was not clear to market participants. 

"It is difficult to tell exactly what happened. Yes, they have reduced cash balance but the difference is not that significant," a dealer at a state-owned bank said. "Maybe some bond redemption would have added some funds." 

Separately, money market did not take any cues from RBI Governor Sanjay Malhotra's interview with the CNBC-TV18 Tuesday. The governor on Tuesday had said that 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.

"Governor didn't say anything new there. I mean, everyone knew that they wanted operating rates to be aligned with repo rate," a dealer at a state-owned bank said. "Market had already factored in call rates being at 5.45-5.50%; possibly, 5.40% (current level) could be the new normal." End

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

Edited by Akul Nishant Akhoury

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