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Informist, Monday, Jul. 28, 2025

By Vidhushi RajPurohit

MUMBAI – The weighted average rates in the money market fell further as demand for funds subsided on the lack of significant scheduled outflows for the day, dealers said. Most of the borrowing was done in the early trading hours by banks to meet their reserve requirements for the current fortnight which commenced Saturday, they said. Some primary dealerships also borrowed funds in low quantum. 

The one-day call rate closed at 5.00%, unchanged from Friday for three-day loans. The weighted average rate was at 35%, down from 5.39% Friday. The rate in the larger triparty repo rate market also closed at 5.20%, below the RBI's Standing Deposit Facility rate 5.25%. The weighted average rate for the triparty repo rate market also ended 5.26%, down from 5.32% Friday. 

"After GST, there are not many outflows and liquidity is also above INR 2 trillion," a dealer at a private sector bank said. "Everyone is also waiting for month-end inflows which will increase the surplus more."

On Sunday, the net liquidity absorbed by the RBI--a proxy for the systemic liquidity surplus--was INR 2.48 trillion, largely unchanged from INR 2.47 trillion on Saturday. Banks also kept INR 9.64 trillion as cash reserve with the RBI, higher than the average daily requirement for the current fortnight which is at INR 9.56 trillion. The comfortable liquidity in the banking system was also evident from the funds parked under the Standing Deposit Facility, which was at INR 1.21 trillion. 

Traders expect the month-end inflows, which will likely commence from Wednesday, to add around INR 1.5 trillion to the banking system. Most traders were expecting the central bank to conduct a variable rate reverse repo auction post the inflows to absorb the excess funds and keep the market rates from falling sharply below the RBI's Standing Deposit Facility rate, dealers said. 

Much to the market's surprise, post-market hours on Monday, the RBI announced an INR 500-billion variable rate reverse repo auction for Tuesday. The auction will reverse on Friday when another seven-day, INR 1.25-trillion variable rate reverse repo auction is also due for reversal. Traders do not expect the auction to have a lasting impact on money market rates as they see the inflows from the government salary and pension payments to be enough for their funding needs, dealers said. 

"WACR (weighted average call rate) will be around repo rate (on Tuesday), but the market repo may come down after the (variable rate reverse repo) auction," a dealer at a state-owned bank said. 

OUTLOOK

* On Tuesday, the one-day call rate is likely to open near the RBI's repo rate on account of variable rate reverse repo auction. 

* RBI will conduct a three-day, INR 500-billion variable rate reverse repo auction at 0930-1000 IST. 

* During the day, the call rate is seen in a range of 4.80-5.60% and the triparty repo rate in a range of 4.90-5.55%.

CALL RATE

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

5.40%--Monday's open for one-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Below repo rate post RBI's liquidity management operations

MUMBAI - The interbank call money rate was below the Reserve Bank of India's repo rate of 5.50% Monday on ample banking system liquidity, dealers said. Money market participants expect the call rate to move in the range of 4.90-5.45% and the triparty repo rate is seen at 4.80-5.30%.

"Rates are expected to be on the lower side today (Monday) because there are a lot of lenders in TREPs market (tri-party repo rate)," a dealer at private sector bank said. The deals from lenders amount to around INR 630 billion against INR 330 billion from borrowers.

At 0957 IST, the one-day call rate on Monday was at 5.40% against the close of 5.00% for three-day loans on Friday. The weighted average call rate was 5.40%, slightly down from 5.43% at the same time on Friday. The triparty repo rate, a market where mutual funds are the primary lenders, was 5.29%, down from 5.33%. The weighted average rate for tri-party repo was 5.29%, down from 5.34% on Friday.

"The rates are down because we have enough liquidity with us which is evident as funds parked under SDF window have shot up," a dealer at a state-owned bank said. "The reversal of seven-day VRRR and the VRRs conducted on Jul. 23 and Thursday have eased the pressure. Going forward, rates will fall further because of month-end spending."

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.

This flush of inflows led banks to increase their parking under the Standing Deposit Facility to INR 1.75 trillion Friday from INR 1.18 trillion Thursday, RBI data showed. On Friday, the net liquidity absorbed by the RBI--a proxy for the systemic liquidity surplus--was INR 2.88 trillion, up from INR 2.56 trillion on Thursday. 

With the easing of rates, the question of another variable rate reverse repo auction puzzles most market participants. However, most of the traders don't expect the central bank to conduct such an operation Monday. "I feel they (RBI) will announce VRRR when rates are sharply down which is not the case today (Monday)," a dealer at a private-sector bank said. "This will happen after government month-end spending starts to enter the system." Government month-end spending which will likely begin on Wednesday is expected to add INR 1.25 trillion to INR 1.5 trillion, dealers said.  End

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

Edited by Akul Nishant Akhoury

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