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Informist, Tuesday, Jul. 22, 2025

By Vidhushi RajPurohit

MUMBAI – The last leg of outflows for goods and services tax payments kept borrowing rates elevated on Tuesday, with weighted average money market rates surging sharply above the Reserve Bank of India's repo rate of 5.50%, dealers said. Fewer participants on the lending front and full subscription at the seven-day, INR 2-trillion variable rate reverse repo auction Friday further lifted money market rates, despite banking system liquidity remaining in ample surplus.  

The weighted average call money market rate jumped sharply to 5.62% from 5.48% Monday. The one-day call money rate settled at 5.00%. Rates in the larger triparty repo market shot up to end at 5.71%, near the RBI's Marginal Standing Facility rate of 5.75%.

The overnight money market benchmark rate, the Secured Overnight Rupee Rate, was set above the repo rate for the first time since its initial fixing on Jul. 7. The SORR was set at 5.68%, sharply up from 5.47%. The overnight Mumbai Interbank Offered Rate was also set above the repo rate at 5.68%, the highest level since the Reserve Bank of India's Monetary Policy Committee cut the repo rate by 50 basis points in June. 

"The total GST payment will be around INR 1.6 trillion and the amount has not risen from last year, but this time there is pressure because banks have kept INR 2 trillion with the RBI," a dealer at a private sector bank said. "What is causing more pressure is there are very few lenders in the market, and almost all banks are on the borrowing side."

On account of the tax outflows, the net liquidity absorbed by the RBI--a proxy for the systemic liquidity surplus--fell to INR 2.40 trillion on Monday from INR 3.04 trillion Sunday. As per RBI data, banks borrowed INR 107.50 billion on Monday through the Marginal Standing Facility, up from INR 11.79 billion Sunday. Banks also nearly halved the amount parked with the RBI at the Standing Deposit Facility to INR 568.52 billion from INR 1.04 trillion Sunday. 

Traders are of the view that rates in the money market will remain elevated until inflows from the government's month-end spending start. However, some traders said the reversal of the INR 2-trillion variable rate reverse repo auction on Friday would take off some of the pressure.  

Market participants expect the central bank to roll over the reverse repo auction on Friday, but the notified amount is likely to be on the lower side, dealers said. They anticipate around INR 500 billion to INR 1 trillion worth of variable rate reverse repo auction for Friday and expect it to receive tepid participation from banks post the tax outflows. However, some market participants were also of the view that the central bank could skip the variable rate reverse repo auction if rates in the money market stay above the repo rate.  

"RBI can assess the liquidity conditions for a few days and then decide about another auction but banks might not be that aggressive as we saw at the last one," a dealer at a state-owned bank said. Some traders also speculated that the central bank could conduct a variable rate repo auction to cool down the market rates. 

OUTLOOK

* On Wednesday, the one-day call rate is likely to open above the RBI's repo rate on demand for funds after 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%--Tuesday's close for one-day loans

5.60%--Tuesday's open for one-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Opens near MSF on GST outflow, full subscription to VRRR auction

MUMBAI – The call rate opened near the Marginal Standing Facility rate of 5.75%, registering the highest opening level since the Reserve Bank of India's Monetary Policy Committee cut the repo rate by 50 basis points in June. The tri-party repo opened at the repo rate of 5.50%. The abrupt increase in money market rates was a result of outflows related to goods and services tax payments and the effect of full subscription at the INR 2 trillion variable rate reverse repo auction conducted on Friday, they added.

After opening at 5.60%, the one-day call rate was at 5.75% at 1000 IST, against 5.00% on Monday. The weighted average call rate was 5.68%, sharply up from 5.52% at the same time Monday. The tri-party repo rate, a market where mutual funds are primary lenders, opened at 5.50%. At 1000 IST, the rate was 5.67%, sharply up from 5.42% at the same time Monday. The weighted average rate for tri-party repo was 5.66%, sharply up from 5.44% at the same time Monday.

"Everybody is panic borrowing because they don't know if they will be able to borrow funds or not," a dealer at a state-owned bank said. "Yesterday (Monday), there were zero lenders left in call, everyone was on the borrowing side, which resulted in very high rates in TREPs as well. So borrowers are trying to fulfil their requirements early in the day itself." 

This panic also led the rates in the Clearcorp Repo Order Matching System to rise to as high as 5.85%. Market participants speculated the borrowers to be primary dealers as banks would not borrow above 5.75% as they have the option to borrow from the RBI through the Marginal Standing Facility. 

Traders expect borrowing through the Marginal Standing Facility to increase on Tuesday if the rates don't cool down, dealers said. As per RBI data, banks borrowed INR 107.50 billion on Monday through the Marginal Standing Facility, up from INR 11.79 billion Sunday. 

The outflows weighed on the system liquidity surplus as banks had already parked INR 2 trillion with the central bank at the seven-day variable rate reverse repo auction on Friday, dealers said. "This (high rates) was bound to happen because whatever liquidity that we are seeing, it is not with banks entirely. Under VRRR, INR 2 trillion has been parked, which means that banks don't have funds," a dealer at a private sector bank said. "The full-subscription had not been an issue if GST outflows were not there. I feel the rates are going to remain at this level only." 

GST outflows which commenced on Monday are expected to drain INR 1.5 trillion to INR 1.7 trillion in tranches, dealers said. The RBI Monday net absorbed INR 2.40 trillion of liquidity, compared to INR 3.04 trillion Sunday. Low funds with banks were also evident as funds parked under the Standing Deposit Facility fell to INR 568.52 billion from INR 1.04 trillion Sunday. (Siddhi Chauhan)

End

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

Edited by Avishek Dutta

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