More Stories

Informist, Thursday, Jul. 24, 2025

By Vidhushi RajPurohit

MUMBAI – The weighted average rates in the money market cooled off Thursday as demand for funds from banks subsided after the Reserve Bank of India conducted two variable rate repo auctions held on Wednesday and Thursday, dealers said. Moreover, most banks have already met their cash reserve requirements for the current reporting fortnight, which ends Friday, and funding needs have also receded, they said. The dearth of any major outflows for the day also resulted in lower demand. 

The one-day call rate settled at 5.00%. The weighted average call rate was 5.54%, down sharply from 5.73% Wednesday. The weighted average rate in the triparty repo rate market also fell to 5.44%, from 5.72% Wednesday. 

"There were no big outflows today (Thursday) and sufficient reserve is also already maintained, so the rates were not that high," a dealer at a state-owned bank said. "Banks also have the funds which they borrowed yesterday (Wednesday) from VRR (variable rate repo auction)."

The lower demand was also evident from the poor subscription at the overnight variable rate repo auction Thursday. The auction saw bids worth a mere INR 14.21 billion as against the notified amount of INR 500 billion. The central bank accepted all bids and set the cut-off rate at 5.51%. Traders cited lower rates in the money market at the time of the auction as the reason for tepid participation. The auction was conducted at 1030-1100 IST, and the weighted average rate in the triparty repo rate market was 5.48% at 1030 IST.

Some traders also reasoned that a lower amount of securities available to keep as collateral deterred some banks from borrowing at the overnight auction. At the two-day, INR 500 billion auction on Wednesday, demand was much more aggressive, with INR 719.02 billion worth of bids from participants. The cut-off rate at the auction was set at 5.53%.  

Both the variable rate repo auctions are due for reversal Friday, when the INR 2-trillion, seven-day variable rate reverse repo auction will also reverse. Post-market hours, the RBI announced that it will conduct a seven-day variable rate reverse repo auction of INR 1.25 trillion on Friday, in line with expectations. Traders were expecting the RBI to roll over the variable rate reverse repo auction to keep the money market rates from sliding sharply below the RBI's Standing Deposit Facility rate of 5.25%, dealers said. 

"The RBI will conduct a VRRR auction because when the previous auction will reverse, it will lead the market rates to fall sharply and now, month-end inflows will also come soon, so that will also bring down rates," a dealer at a private sector bank said. Traders expect the inflows from the government's month-end spending to commence next week and estimate it to be around INR 1.50 trillion. 

On Wednesday, the net liquidity absorbed by the RBI--a proxy for the systemic liquidity surplus--was INR 2.17 trillion, slightly lower than INR 2.42 trillion on Tuesday. Banks Wednesday increased their cash balance with the central bank to INR 9.69 trillion from INR 9.45 trillion on Tuesday, RBI data showed. For the fortnight ending Friday, banks are required to maintain an average of INR 9.63 trillion. So far in the current fortnight, banks have already maintained an average sum of INR 9.70 trillion with the RBI. 

OUTLOOK

* On Friday, the three-day call rate is likely to open near the RBI's repo rate on demand for funds from banks to meet reserve requirements as the current reporting fortnight ends.

* Reversal of the seven-day variable rate reverse repo auction will release INR 2 trillion, which banks had parked with the RBI.

* Two variable repo auctions worth INR 514.22 billion are also due for reversal Friday.

* RBI will conduct a seven-day variable rate reverse repo auction for INR 1.25 trillion at 1030-1030 IST.

* During the day, the call rate is seen in a range of 5.00-5.65% and the triparty repo rate in a range of 4.90-5.60%.

CALL RATE

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

5.65%--Thursday's open for one-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Opens above repo; full subscription to overnight VRR unlikely

MUMBAI – The interbank call money rate opened above the repo rate of 5.50% Thursday owing to high demand for funds due to goods and services tax outflows, which commenced on Monday and variable rate reverse repo, which was held on Friday, dealers said. Despite opening above the repo rate, the call money rate was significantly lower than the previous day's opening level. The cool-off in rates was due to the variable rate repo auction conducted by the Reserve Bank of India Wednesday. 

After opening at 5.65%, the one-day call rate was at 5.63% at 1000 IST, against 5.05% at close on Wednesday. The weighted average call rate was 5.63%, sharply down from 5.82% at the same time Wednesday. The tri-party repo rate, a market where mutual funds are primary lenders, opened at 5.40%. At 1000 IST, the rate was 5.46%, down from 5.69% at the same time Wednesday. The weighted average rate for tri-party repo was 5.49%, sharply down from 5.73% at the same time Wednesday.

"There is still pressure on rates even though it has fallen from 5.70-80% level to 5.50-5.60% levels," a dealer at a state-owned bank said. "We were expecting RBI to announce an overnight VRR today (Thursday) because of elevated rates, ideally the RBI would want the rates to be near repo."

As the weighted average money market rates hovered around the Marginal Standing Facility rate of 5.75% Wednesday, the Reserve Bank of India conducted the first variable rate repo auction since Jun. 10. At the two-day variable rate repo auction of INR 500 billion 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%. 

In line with the market expectation, the central bank on Thurday announced that it will hold an overnight variable rate repo auction for INR 500 billion from 1030 IST to 1100 IST, the central bank said. The reversal of the tender will take place on Friday.

Market participants do not expect the overnight variable rate repo auction to be fully subscribed due to lower rates in the tri-party market, dealers said. "Unless some one wants to earn an arbitrage by borrowing at 5.51% and parking in the call market it can work. Otherwise I think everyone would have covered their requirement from the market itself," a dealer at a private sector bank said. "The rates in tri-party market are around 5.46%, so why would anyone prefer borrowing at 5.51% from VRR." On Wednesday, the net liquidity absorbed by the RBI--a proxy for the systemic liquidity surplus--was INR 2.17 trillion, little changed from INR 2.42 trillion on Tuesday. (Siddhi Chauhan)

End

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

Edited by Saji George Titus

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.