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Informist, Wednesday, Jul. 30, 2025

By Vidhushi RajPurohit

MUMBAI – The weighted average money market rates remained below the Reserve Bank of India's repo rate of 5.50% Wednesday as most banks refrained from borrowing as they had ample funds, dealers said. Traders said inflows from government's salary and pension payouts also commenced Wednesday, further reducing the need for borrowed funds. 

In the call money market, majority of the borrowing was done by primary dealerships Wednesday, dealers said. Meanwhile, mutual funds were the major participants in the triparty repo market on account of their month-end redemption pressure, they added. Consequently, the triparty repo rates rose above the repo rate to touch the day's high of 5.63%. Ample surplus liquidity in the banking system, on the other hand, cooled off the rates, dealers said. The weighted average rate in the triparty repo market inched slightly higher to 5.33%, from 5.30% Tuesday. 

"In the afternoon, TREPs rate shot up but that was for a brief time. There are not many lenders active right now because no one wants to give away funds unless there is major requirement," a dealer at a private sector bank said. 

The one-day call money market rate closed at 5.36%, with the weighted average rate at 5.37%. On Tuesday, the weighted average rate was 5.38%. The call money rate remained in the range of 4.75-5.42% for the day. 

"Banks were also not actively lending despite ample surplus due to some credit disbursals near month-end," a dealer at another private sector bank said. "Some banks were also hesitant to lend as there are IPOs (initial public offerings) lined up."

On Tuesday, the net liquidity absorbed by the RBI--a proxy for the systemic liquidity surplus--was INR 2.68 trillion, up from INR 2.24 trillion on Monday, the central bank's data showed. Some traders expect the RBI to conduct more variable rate reverse repo auctions post month-end inflows if the rates in the money market rates drop sharply below the Standing Deposit Facility rate of 5.25%. 

In line with traders' expectations, the central bank announed an overnight variable rate reverse repo auction for INR 500 billion for Thursday. The auction will be held at 0930-1000 IST. 

Traders also await the RBI's new liquidity management framework. The framework will likely provide clear directions on the newly introduced overnight money market benchmark rate, the Secured Overnight Rupee Rate, dealers said. Some speculations were also there that the RBI could introduce a fixed rate repo or reverse repo window. However, most traders remained unclear as to what the framework would entail, with some expectating the central bank to likely define the optimal level of liquidity in the banking system. On Wednesday, NDTV Profit reported that the framework will be released at the outcome of the RBI's Monetary Policy Committee meeting scheduled next week.

Money market dealers also await clarity on the RBI's dollar/rupee buy-sell swaps which are set to mature Monday. Informist had reported Tuesday that the RBI has strong reasons to give delivery of $5 billion on its dollar/rupee buy-sell swaps given the ample rupee liquidity in the banking system. The RBI giving delivery of the forward dollars it sold as a part of the swap would entail the central bank infusing $5 billion into the financial system while simultaneously taking out around INR 430 billion of rupee liquidity, at the current exchange rate.

OUTLOOK

* On Thursday, the one-day call rate is likely to open above the RBI's repo rate on the overnight variable rate reverse repo auction notice.

* The RBI will hold an overnight INR 500-billion variable rate reverse repo auction at 0930-1000 IST Thursday. 

* During the day, the call rate is seen in a range of 4.80-5.60% and the triparty repo rate in seen in a range of 4.70-5.55%.

CALL RATE

5.36%--Wednesday's close for one-day loans

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

4.95%--Tuesday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Below repo rate on ample liquidity; month-end inflows awaited

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 5.50% in early trade Wednesday amid a comfortable liqudity surplus and absence of significant outflows, dealers said. Inflows from the government's month-end spending are also likely to start Wednesday, which further dampened the requirement for funds. Rates are expected to ease further during the day, dealers said. Traders expect inflows for the government's month-end spending to add INR 1.25 trillion to INR 1.50 trillion to the banking system this week. 

The one-day call money rate opened at 5.40% Tuesday and, at 1008 IST, the weighted average call rate was 5.38%. The triparty repo rate, where mutual funds are major lenders, opened at 5.30%, and the weighted average triparty repo rate was also the same as of 1008 IST. The triparty repo rate is expected to remain in the range of 5.25-5.35%, while call money rates are expected to be in the range of 5.30-5.45%.

"Today, most likely the spending will start...and the surplus liquidity will see a rise in next two days and we will probably see again the above INR 3 trillion level," a dealer at a state-owned bank said. Dealers said there were no major outflows scheduled apart from the settlement of INR 277.19 billion for state bonds following Tuesday's auction.

On Tuesday, the net liquidity absorbed by the RBI--a proxy for the systemic liquidity surplus--was INR 2.68 trillion, up from INR 2.24 trillion on Monday, central bank data showed. 

Meanwhile, some dealers said another variable rate reverse repo auction of INR 500 billion could be on the cards when two auctions are set to reverse. This will depend on liquidity conditions after the inflows, particularly if call money rates fall sharply below the RBI's Standing Deposit Facility rate of 5.25%, dealers said.

Market participants also await the central bank's draft guidelines on the liquidity management framework, expected to be issued this week. The guidelines are anticipated to outline the optimal level of liquidity in the banking system that the central bank aims to maintain. (Vaishali Tyagi)

End

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

Edited by Tanima Banerjee

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