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Informist, Friday, Jul. 25, 2025

By Vidhushi RajPurohit and Siddhi Chauhan

MUMBAI – After three consecutive trading sessions this week, the weighted average call rate ended below the Reserve Bank of India's repo rate of 5.50% despite it being reporting Friday, dealers said. Rates remained around the repo rate despite a full subscription at the central bank's INR 1.25-trillion variable rate reverse repo auction Friday. The reversal of Jul. 18's INR 2.00-trillion variable rate reverse repo auction and an absence of major outflows for the day led the rates to cool off, they said.

"Generally when there is a VRRR auction the rates rise, but today (Friday) there was no impact on rates at all," a dealer at a state-owned bank said. "The rates are where they were before the auction. This has happened even when it is a reporting Friday."

The three-day call rate settled at 5.00%, with the weighted average rate falling sharply to 5.39% from 5.54% Thursday. The weighted average rate in the triparty repo rate market also declined to 5.32%, from 5.44% Thursday.

Some traders reasoned that with banks having met their reserve requirements for the current fortnight, there was not much rush for funds in the money market. Earlier in the week, outflows for goods and sevices tax payment had led the overnight rates to surge close to the RBI's marginal standing facility rate of 5.75%. 

Money market rates were also significantly lower from the previous day owing to comfortable systemic liquidity with banks after the two variable rate repo auctions conducted by the RBI this week, on Wednesday and Thursday, dealers said.

At the overnight variable rate repo auction conducted Thursday, the central bank got a mere INR 14.21 billion against the notified amount of INR 500.00 billion. At the two-day variable rate repo auction held Wednesday for INR 500.00 billion, demand was much more aggressive, with INR 719.02 billion worth of bids from participants. Both the variable rate repo auctions were reversed Friday, along with the reversal of the INR 2.00-trillion, seven-day variable rate reverse repo auction held Jul. 18. Consequently, the funds parked with the RBI under its standing deposit facility, which had fallen below INR 1.00 trillion earlier in the week, rose to INR 1.18 trillion Thursday, data from the central bank showed.

At the seven-day variable rate reverse repo auction, the central bank got offers amounting to INR 1.42 trillion, of which INR 1.25 trillion were accepted. The central bank set the cut-off rate at 5.49% and the weighted average rate was set at 5.48%. The auction was oversubscribed as traders anticipate month-end inflows to boost the surplus liquidity next week, dealers said.

"We were not expecting the auction to be fully subscribed because we already have seen the consequences of oversubscription this week," a dealer at a private-sector bank said. "Also banks had to meet their CRR (cash reserve ratio) requirements this Friday, that's why everyone was thinking there will be less subscription."

As per prudential requirements, banks are required to maintain an average cash balance with the central bank. For the fortnight ending Friday, banks were supposed to maintain an average of INR 9.63 trillion. Banks Thursday maintained with the RBI a cash balance of INR 9.50 trillion, lower than INR 9.69 trillion maintained Wednesday, RBI data showed. Of the 13 days this fortnight for which data are available from the RBI, banks had maintained an excess cash balance for six days. 

OUTLOOK

* Money markets are shut Saturday. On Monday, the one-day call rate is likely to open below the RBI's repo rate on lack of major outflows. 

* During the day, the call rate is seen in a range of 4.80-5.50% and the triparty repo rate in a range of 4.90-5.55%.

CALL RATE

5.00%--Friday's close for three-day loans

5.45%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Below repo rate first time this week despite being reporting Fri

MUMBAI – The interbank call money rate opened below the Reserve Bank of India's repo rate of 5.50% for the first time this week despite it being a reporting Friday, dealers said. "RBI has been conducting VRRs for two consecutive days, this has eased the pressure on rates. If you see because of that SDF parking has also increased," a dealer at a state-owned bank said. "Then, we have also received the inflows of INR 2 trillion from the reversal of VRRR auction held in the previous week. This has kept rates down from previous days."

The RBI conducted two variable rate repo this week – on Wednesday and Thursday. At the overnight variable rate repo auction conducted Thursday, the central bank got mere INR 14.21 billion against the notified amount of INR 500 billion. At the two-day variable rate repo auction held on Wednesday for INR 500 billion, demand was much more aggressive, with INR 719.02 billion worth of bids from participants. Both the variable rate repo auctions reversed Friday, along with the reversal of INR 2-trillion, seven-day variable rate reverse repo auction held on Jul. 18.

At 1010 IST, the three-day call rate was at 5.40%, against the close of 5.00% for one-day loans on Thursday. The weighted average call rate was 5.43%, slightly down from 5.65% at the same time on Thursday. The triparty repo rate, a market where mutual funds are the primary lenders, was 5.30%, down from 5.49% at the same time Thursday. The weighted average rate for tri-party repo was 5.34%, down from 5.50% at the same time on Thursday.

After the variable rate repo auctions, the money market rates have cooled off. Consequently, the funds parked under RBI's Standing Deposit Facility window that had fallen below INR 1.00 trillion earlier in the week rose to INR 1.18 trillion on Thursday, data from RBI showed.

Money market rates were also lower as most banks had maintained their cash reserve requirements with the central bank, dealers said. However, a few banks who were yet to do so due to high rates were seen borrowing in the overnight market, dealers said. As per prudential requirements, banks are required to maintain an average cash balance with the central bank. For the fortnight ending Friday, banks are supposed to maintain an average of INR 9.63 trillion. Banks Thursday maintained with the RBI a cash balance of INR 9.50 trillion, lower than INR 9.69 trillion maintained Wednesday, RBI data showed.

The pressure on money market rates is not significant even as the RBI conducted seven-day variable rate reverse repo auction for INR 1.25 trillion earlier in the day, dealers said. This is because banks are not keen to participate aggressively at the auction due to reporting Friday needs, dealers said. "Some banks still need to maintain the average CRR so they won't go at the VRRR today (Friday)," a dealer at a private sector bank said. "Also, banks won't repeat the error made by them in the previous week. They won't go aggressive today."

At the variable rate reverse repo auction conducted on Jul. 18, the central bank 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%.  End

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

Edited by Rajeev Pai

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