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Informist, Wednesday, Jul. 23, 2025

By Vidhushi RajPurohit

MUMBAI – The Reserve Bank of India's two-day variable rate repo auction cooled off the call money market rates Wednesday to settle below the Reserve Bank of India's Standing Deposit Facility rate of 5.25%, dealers said. However, the weighted average money market rate rose sharply as demand for funds remained elevated post the goods and services tax payment outflows. The tax outflows weighed on banks' funding needs as they had already parked INR 2 trillion with the RBI at the seven-day variable rate reverse repo auction Friday, they said.

"On the lending side, there are very few participants and some mutual funds are also facing redemption pressure now, so that is leading to higher borrowing rates," a dealer at a private sector bank said. "The rates will ease when the locked-up funds at VRRR are released and when the month-end inflows start."

The weighted average call money market rate jumped to 5.73%, up 11 basis points from Tuesday. In the triparty repo rate market, the weighted average rate was 5.72%, up from 5.69% Tuesday. The one-day call rate closed at 5.05%, after touching an intraday high of 5.85%, sharply above the RBI's Marginal Standing Facility rate of 5.75%. The rates in the call money market were at their highest levels since the RBI's monetary policy committee cut the repo rate by 50 bps to 5.50%. 

The money market rates surged as banks struggled to maintain the daily average reserve requirements and with a smaller number of participants on the lending side, dealers said. On Tuesday, the net liquidity absorbed by the  RBI--a proxy for the systemic liquidity surplus--was INR 2.42 trillion, little changed from INR 2.40 trillion on Monday. Banks maintained INR 9.45 trillion with the RBI as cash reserves, lower than the average daily requirement of INR 9.63 trillion for the current fortnight, which ends on Friday. The outflows for goods and services tax payment are estimated to have drained INR 1.50 trillion to INR 1.70 trillion from the banking system, dealers said. 

At the two-day variable rate repo auction Wednesday, the central bank accepted bids worth INR 500.01 billion out of the total bids of INR 719.02 billion. The central bank set the cut-off rate at 5.53%, with the weighted average rate at 5.58%. This was the first variable-rate repo auction since Jun. 10. Some traders expect the central bank to assess the borrowing rates Thursday and conduct an overnight variable rate repo auction if the rates rise above the Marginal Standing Facility rate. 

"The RBI is not comfortable with rates going above MSF or below SDF and that's why it came up with the auction," a dealer at another private sector bank said. "But the auction would have been more helpful if it was conducted earlier in the day and because by the time of the auction, most banks would have already borrowed funds from the (money) market." The auction was held at 1315-1345 IST. 

On Wednesday, the overnight money market benchmark rate, the Secured Overnight Rupee Rate, was also set above the Marginal Standing Facility rate for the first time since its initial fixing on Jul. 7. The SORR was set at 5.76%, up from 5.68% Tuesday. The overnight Mumbai Interbank Offered Rate was also set above the Marginal Standing Facility rate at 5.82%. 

OUTLOOK

* On Thursday, 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 5.00-5.65% and the tri-party repo rate in a range of 4.90-5.70%.

CALL RATE

5.05%--Wednesday's close for one-day loans

5.77%--Wednesday's open for one-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Above MSF on GST outflows, full subscription to VRRR auction Fri

MUMBAI – For the first time since the repo rate was cut by 50 basis point at the monetary policy meeting in June, the call rate Wednesday opened at the Marginal Standing Facility rate of 5.75% and the tri-party repo opened sharply above the repo rate of 5.50%. This is because there are fewer lenders and more borrowers after the outflows for goods and services tax on Monday and INR 2-trillion variable rate reverse repo auction held on Friday, dealers said.

After opening at 5.77%, the one-day call rate was at 5.80% at 1000 IST, against 5.00% on Tuesday. The weighted average call rate was 5.82%, sharply up from 5.68% at the same time Tuesday. The tri-party repo rate, a market where mutual funds are primary lenders, opened at 5.69%. At 1000 IST, the rate was 5.69%, up from 5.67% at the same time Tuesday. The weighted average rate for tri-party repo was 5.73%, sharply up from 5.66% at the same time Tuesday.

The rates in the Clearcorp Repo Order Matching System rose to as high as 5.90%. 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 Reserve Bank of India through the Marginal Standing Facility.

"After GST outflows and VRRR the surplus is concentrated with very few banks. Majority of the banks are on the borrowing side," a dealer at a private sector bank said. "I think for the entire week the rates will be high only." Market participants expect both the call rate and the tri-party repo rate to be near Marginal Standing Facility rate of 5.75% for this week.

The outflows for goods and services tax likely drained around INR 1.5 trillion from the banking system, dealers said. On Tuesday, the net liquidity absorbed by the RBI--a proxy for the systemic liquidity surplus--was INR 2.42 trillion, up from INR 2.40 trillion on Monday. Borrowing by banks through the Marginal Standing Facility window rose to INR 132.73 billion, the highest seen since May 1.

The reversal of variable rate reverse repo auction conducted on Jul. 18 will add INR 2 trillion into the banking system Friday. As a result, traders expect the central bank to come up with another such operation, dealers said. However, the expectation of quantum differs--a few expect the notified amount to be INR 500 billion to INR 1 trillion and a few feel it would be INR 2 trillion, dealers said. 

"After looking at this week, it feels that they (RBI) are doing this purposefully because we have month-end spending coming up next week," another dealer at a private sector bank said. "So, if they keep the VRRR quantum lower than INR 2 trillion, there are chances that rates will fall below repo."

The government's month-end spending, which will start next week, is expected to add INR 1.5 trillion to INR 1.7 trillion into the system, dealers said.  End

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

Edited by Saji George Titus

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