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Informist, Thursday, Jul. 17, 2025

By Vidhushi RajPurohit

MUMBAI – Weighted average rates in the money market remained above the Reserve Bank of India's Standing Deposit Facility rate of 5.25% driven by the central bank's recent liquidity absorption measure, dealers said. However, ample surplus liquidity in the banking system and absence of major outflows kept rates from shooting above the RBI's repo rate, they said. 

The one-day call rate settled at 4.90%, unchanged from the previous day's close. The weighted average call rate was at 5.35%, compared with 5.36% Wednesday. The call rate was at 4.75-5.40% during the day. The triparty repo rate closed at 5.27% and the weighted average rate was unchanged from the previous day's close of 5.28%.

"Banks money is mostly parked with the RBI after the VRRR auctions, so that's why the (money) market is active nowadays," a dealer at a private sector bank said. "They are trying to keep enough reserves also because next week GST is there so no one wants that pressure."

The Reserve Bank of India has absorbed INR 2.09 trillion collectively through two variable rate reverse repo operations, dealers said. At the seven-day INR-2.50-trillion VRRR auction on Jul. 11, the RBI accepted all offers worth INR 1.52 trillion, while at the two-day variable rate reverse repo held on Jul. 9., the central bank absorbed INR 973.15 billion. 

Both of the auctions will reverse on Friday and traders expect the RBI to conduct another seven-day auction to roll over the quantum. However, they expect the central bank to lower the notified amount in light of the upcoming outflows for goods and services tax payment, which is estimated to drain around INR 1.75 trillion to INR 2.00 trillion from the banking system. The outflows will likely commence on Monday, dealers said. Traders expect the notified quantum to be around INR 1 trillion. 

Some traders even expect the central bank to skip the auction on Friday and assess the liquidity conditions after the tax outflows before conducting further variable rate reverse repo operations. The RBI Wednesday net absorbed INR 3.11 trillion of liquidity from the banking system, slightly higher than INR 3.00 trillion on Tuesday.

OUTLOOK

* On Friday, the three-day call rate may open near the RBI's repo rate due to weekend funding needs.

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

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

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Even with absence of major outflows, call rate opens at 5.40%

MUMBAI - The interbank call money rate opened at 5.40% for the second consecutive trading session Thursday due to the variable rate reverse repo auction conducted Tuesday, dealers said. "The system has INR 3 trillion liquidity (surplus) but INR 2 trillion of the said amount is locked due to VRRRs," a dealer at a state-owned bank said. "As a result, many banks which were earlier on the lending side are now borrowing, leading rates to rise." At the variable rate reverse repo auction Tuesday, the central bank accepted the entire INR 574.50 billion offered at a cut-off rate of 5.49%.  

In the previous week, barring two days out of five days, the call rate opened in the range of 5.30-5.35%. It was after the Reserve Bank of India absorbed INR 2.09 trillion collectively through two variable rate reverse repo operations that the rates started to inch up, dealers said. At the seven-day, INR-2.50-trillion VRRR auction on Jul. 11, the RBI accepted all offers worth INR 1.52 trillion, while at the two-day variable rate reverse repo held on Jul. 9., the central bank absorbed INR 973.15 billion.

At 1006 IST, the one-day call rate was at 5.40% Thursday, against 4.90% on Wednesday. The weighted average call rate was also at 5.40%, unchanged from Wednesday's level at the same time. The triparty repo rate, a market where mutual funds are the primary lenders, was 5.30%, up from 5.25% at the same time on Tuesday. The weighted average rate for tri-party repo was also 5.29%, up from 5.27% at the same time on Wednesday. Market participsnts expect the money market rates to cool off in the second half due to demand falling, dealers said. 

On Friday, inflows from the maturity of the seven-day and three-day variable rate reverse repo auctions is expected to hit the system. As a result, traders expect 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, dealers said. However, participation from banks is expected to be muted due to outflows for goods and services tax which will start from the next week, dealers said. These outflows will likely drain out INR 1.5 trillion to INR 1.7 trillion from the banking system, dealers said.

"Surely, RBI will come up with a VRRR because these operations are pushing rates near the repo rate," a dealer at a private-sector bank said. "Let's see what will be the amount of operation that they will bring tomorrow (Friday}." 

The RBI Wednesday net absorbed INR 3.11 trillion of liquidity from the banking system, higher than INR 3.00 trillion on Tuesday. Having maintained significantly higher than the average cash balance required, the banks Wednesday decreased their cash balance with the central bank to INR 9.61 trillion from INR 9.94 trillion on Tuesday, RBI data showed. As per prudential requirements, banks are required to maintain an average cash balance with the central bank. For the fortnight ending Jul. 25, banks are supposed to maintain an average of INR 9.63 trillion. (Siddhi Chauhan)  End

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

Edited by Akul Nishant Akhoury

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