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Informist, Friday, Jul. 18, 2025

By Vidhushi RajPurohit and Siddhi Chauhan 

MUMBAI – Money market rates remained under pressure Friday driven by the Reserve Bank of India's variable rate reverse repo auction, dealers said. The forthcoming weekend further increased the demand for funds, which kept the weighted average rates higher than the RBI's Standing Deposit Facility rate of 5.25%, they said. Part of the pressure was offset by the systemic surplus liquidity of more than INR 3 trillion and, consequently, the rates cooled off later in the day. 

The three-day call rate settled at 5.10%, slightly up from 4.90% for one-day loans Thursday. The weighted average call rate was at 5.35%, unchanged from the previous day. The triparty repo rate closed at 5.26% and the weighted average rate was 5.31%, slightly higher than 5.28% Thursday.

"The central bank's VRRR auctions are making sure that rates are above the SDF rate," a dealer at a private sector bank said. "Today, there was a reversal also, and without the new auction, the (weighted average) rates would have surely dropped below the SDF rate." The liquidity management operation also kept the overnight money market benchmark rate, the Secured Overnight Rupee Rate, above the SDF rate, they said. The SORR was set at 5.32% Friday. 

At the seven-day variable rate reverse repo auction, the central bank got bids worth INR 2.08 trillion, of which INR 2 trillion were accepted. The central bank set the cut-off and weighted average rate at 5.49%.

"If the overnight market rates are not rising above 5.40% but by parking at VRRR, I can earn a good spread, I will definitely do that," a dealer at a state-owned bank said. "Nothing additional has gone from the system. Today (Friday) morning, we received the reversal amount, the same amount has been parked again." The RBI Thursday net absorbed INR 3.09 trillion, similar to INR 3.11 trillion absorbed on Wednesday.

Market participants had expected the INR 2 trillion seven-day variable rate reverse repo auction to be under-subscribed due to the upcoming goods and services tax outflows, which will start on Monday, dealers said. These outflows will likely drain around INR 1.75 trillion from the banking system, dealers said. The full subscription was nothing short of a shocker for the market, dealers said. The traders, who cited good spreads as the main motive behind full participation, said banks would likely depend on borrowing from the triparty repo market in the next week, which could lead to rates rising to the repo rate of 5.50%.

"Unlike banks, mutual funds don't get to participate in VRRRs so they can deploy their funds here (TREPs market)," a dealer at a state-owned bank said. "Before VRRR, banks had thought they would park at VRRR at higher rates and would borrow from at lower rates to fulfil their day-to-day operations. This has resulted in a rise in tri-party repo rates."

OUTLOOK

* On Saturday, the two-day call rate is likely to open below the RBI's repo rate.

* Volumes are expected to be low, as is usual on Saturdays, as banks meet their requirement for funds the previous day.

* During the day, the call rate is seen in a range of 4.80-5.35% and the tri-party repo rate in a range of 4.70-5.25%.

CALL RATE

5.10%--Friday's close for three-day loans

5.35%--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: Below repo rate; full subscription to VRRR auction unlikely

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 5.50% Friday, despite the scheduled INR 2-trillion seven-day variable rate reverse repo auction as market participants may not participate in the auction aggressively, dealers said.

"I think the subscription will be around INR 1.50 trillion because generally on Fridays need for liquidity is high," a dealer at a private sector bank said. "Also, outflows are there next week, so banks would like to have some funds with them." Next week, outflows for goods and services tax payment are estimated to drain INR 1.75 trillion to INR 2.00 trillion from the banking system. The outflows will likely commence on Monday, dealers said.

The reversal of the seven-day variable rate reverse repo auction held Friday will take place on Jul. 25. Money market traders were expecting the RBI to announce an auction as two VRRR auctions amounting to INR 2.09 trillion held earlier were due for reversal Friday. At the seven-day INR 2.50-trillion VRRR auction held 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 1010 IST, the three-day call rate was at 5.40%, against 4.90% for one-day loans on Thursday. The weighted average call rate was at 5.39%, slightly down from 5.40% at the same time on Thursday. The triparty repo rate, a market where mutual funds are the primary lenders, was at 5.29%, down from 5.30% at the same time on Thursday. The weighted average rate for tri-party repo was also at 5.29%, up from 5.28% at the same time on Thursday. 

Unlike the days when the variable rate reverse repo operations were held, there was no urgency from market participants to borrow funds aggressively from the overnight market Friday, dealers said. "The demand today (Friday) is very need based, usually on days like these, apart from the usual primary dealers, small banks also borrow," a dealer at a state-owned bank said. "But today there is no demand, I have got offers to lend as low as 5.35%."

Market participants attributed the low demand to availability of funds with them. "See this is a plausible explanation that maturity of over INR 2 trillion have already entered into the system and nobody wants to park the full amount at VRRR," a dealer at a private-sector bank said. "So then they have around INR 500 billion with them, and they are using it to fulfil their day to day requirement." The RBI Thursday net absorbed INR 3.09 trillion, largely similar to INR 3.11 trillion on Wednesday. (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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