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Informist, Monday, Jul. 21, 2025

By Vidhushi RajPurohit

MUMBAI – Weighted average rates in the money market surged to near the Reserve Bank of India's repo rate of 5.50%, as outflows for the goods and service tax payment commenced Monday, dealers said. The outflows weighed on the systemic surplus as banks have already parked INR 2 trillion with the Reserve Bank of India at the variable rate reverse repo auction Friday, they said. 

The one-day call money market rate settled at 5.00%, unchanged from the close on Saturday for two-day loans. The weighted average rates surged to 5.48%, from 5.00% Saturday. The rates in the triparty repo market also jumped sharply with weighted average rate at 5.51%, up from 5.07% on the previous day. 

"There is still comfortable liquidity but INR 2 trillion of the total INR 3 trillion which you see is not with banks right now so that led to spike in rates," a dealer at a state-owned bank said. "The rates also spiked because there were not many lenders active in the market today (Monday), as in next few days we will get a clarity of where is the liquidity after the outflows are over." 

The RBI Sunday net absorbed INR 3.04 trillion from the banking system. Inflows of INR 199.25 billion on buyback of government securities came into the banking system on Friday, but there was no impact in the banking system, dealers said. Outflows for goods and services tax are expected to drain around INR 1.7 trillion to INR 2.0 trillion from the system this week, dealers said. Other than this, outflows of INR 270 billion for the payment of government securities auctioned on Friday also weighed on the systemic surplus, dealers said.

"In the TREPs (triparty repo rate) market, mutual funds also took advantage of the banks' need for funds and raised their lending rates. Other than that, they do not have any redemption pressure as of now," a dealer at another state-owned bank said. 

The tax outflows also led the overnight money market benchmark rate, the Secured Overnight Rupee Rate, to be set near the repo rate. The SORR was set at 5.47% Monday, up from 5.32% Friday. Since its initial fixing on Jul. 7, Monday's level is the highest rate at which SORR is set. The overnight Mumbai Interbank Offered Rate was set above the repo rate at 5.52%, the highest level since Jun. 30. Traders expect the rates to remain elevated this week until the reversal of the INR-2-trillion variable rate reverse repo action takes place Friday. 

OUTLOOK

* On Tuesday, the one-day call rate is likely to open near the RBI's repo rate on demand for funds to meet the remainder of goods and services tax outflows.

* During the day, the call rate is seen in a range of 5.00-5.50% and the tri-party repo rate in a range of 4.90-5.50%.

CALL RATE

5.00%--Monday's close for one-day loans

5.52%--Monday's open for one-day loans

5.00%--Saturday's close for two-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call:Rises above repo rate for second time in July; GST outflows weigh

MUMBAI – The interbank call money rate opened above the Reserve Bank of India's repo rate of 5.50% as significant outflows are scheduled for the day, dealers said. After Jul. 11, this is the second time in July that the call rate has risen above the repo rate. The strain of full subscription at the INR 2-trillion seven-day variable rate reverse repo auction held Friday added to the pressure on money market rates, dealers said.

"Today (Monday) there are large outflows because of GST (goods and services tax). I think I was hearing around INR 1.25 trillion and nobody knows what amount will actually leave the system today," a dealer at a state-owned bank said. "Also, many banks don't have enough funds with them because the INR 2 trillion VRRR auction was fully subscribed on Friday." At the seven-day variable rate reverse repo auction, the RBI got bids worth INR 2.08 trillion, of which INR 2.00 trillion were accepted. The central bank set the cut-off and weighted average rate at 5.49% at the auction.

At 1000 IST, the one-day call rate was 5.52%, against 5.00% for two-day loans on Saturday. The weighted average call rate was 5.52%, sharply up from 5.38% same time Friday. The tri-party repo rate, a market where mutual funds are primary lenders, was 5.44%, sharply up from 5.29% same time Friday. The weighted average rate for tri-party repo was 5.41%, up from 5.29% at the same time Friday. Weighted average rates of working Saturdays are not comparable due to faint volumes on these days.

During the day, outflows for goods and services tax are expected to drain liquidity significantly from the banking system, dealers said. These outflows will cumulatively drain INR 1.5 trillion to INR 1.7 trillion from the system this week, dealers said. Other than this, outflows of INR 270 billion for the payment of government securities auctioned on Friday will also take place during the day, dealers said.

Due to the said pressure on liquidity, the call rate is seen in a range of 4.90-5.55% and the tri-party repo rate is seen at 4.85-5.45%, dealers said. Some market participants expect the pressure to ease because of government spending mid-month, dealers said.

On the liquidity front, the RBI Friday net absorbed INR 3.09 trillion, unchanged from Thursday. Inflows of INR 199.25 billion on buyback of government securities came into the banking system on Friday, but there was no impact in the banking system, dealers said.  End

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

Edited by Deepshikha Bhardwaj

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