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Informist, Thursday, Jul. 31, 2025

By Vidhushi RajPurohit

MUMBAI – Weighted average rates in the money market shot up Thursday as the Reserve Bank of India held an overnight variable rate reverse repo auction for INR 500 billion, dealers said. Rates were also higher on account of demand for funds as Thursday was the closing days for some initial public offers, they said. 

At the overnight variable rate reverse repo auction, the RBI accepted all offers aggregating to INR 130.75 billion and set the cut-off rate at 5.49%. The auction was undersubscribed because market participants sought to lend at the higher rates in the money market, dealers said. The auction was held at 0930-1000 IST, and at the time the rates in both call and triparty repo market were above the RBI's repo rate of 5.50%. 

"Today (Thursday), there are lenders in the market but everyone want to wait for the rates to go higher and only then they are lending," a dealer at a state-owned bank said. "In TREPs, mutual funds are not lending now as they have shortage of funds now that it is last day of month."

The one-day call rate settled at 4.95%, with the weighted average rate at 5.49%, up by 12 basis points from Wednesday. The weighted average rate in the triparty repo market also rose by 10 bps to 5.43%. Traders said the weighted average rates were also higher as some banks had funding needs on account of a few initial public offers which closed Thursday. 

In the early trading hours, primary dealers were also active in the borrowing side and they were seen active in four-day tenure, dealers said. "Primary dealers were likely borrowing now because tomorrow is G-Sec auction and (money market) rates can go higher if RBI holds VRRR auction," a dealer at another state-owned bank said. At the governement bond auction Friday, the government will sell INR 320 billion of two gilts. 

In line with expectations, the RBI announced a seven-day variable rate reverse repo auction for INR 2 trillion for Friday. Three variable rate reverse repo auctions are also due for reversal on Friday, which will cumulatively lead to inflows of INR 1.84 trillion.

On Wednesday, the net liquidity absorbed by the RBI--a proxy for the systemic liquidity surplus--was INR 2.54 trillion, down from INR 2.68 trillion on Tuesday, central bank data showed. Banks raised the amount of cash reserves parked with the RBI to INR 9.73 trillion on Wednesday from INR 9.62 trillion on Tuesday against the average daily requirement of INR 9.56 trillion for the current fortnight. Month-end spending from government's salary and pension payouts is expected to add around INR 1.5 trillion of liquidity into the banking system by Monday, dealers said. 

"The inflows have begun but you will see the impact at start of next month because it does not come in at once," a dealer at a private sector bank said. "Banks also have used up some funds for their individual credit disbursal needs."

In the upcoming weeks, traders fear that the systemic liquidity could come under pressure if the RBI intervenes aggressively in the foreign exchange market with its dollar sales to support rupee. The rupee settled at a record closing low against the dollar Thursday as investors rushed to withdraw funds from domestic financial markets after US President Donald Trump announced 25% tariff on imports from India, starting Friday. 

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.

OUTLOOK

* On Friday, the three-day call rate is likely to open above the RBI's repo rate on the seven-day variable rate reverse repo auction notice.

* The RBI will hold seven-day INR 2-trillion 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 seen in a range of 4.70-5.55%.

CALL RATE

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

5.50%--Thursday's open for one-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: At repo rate due to VRRR auction; month-end inflows to aid

MUMBAI – The interbank call money rate was at the repo rate on Thursday due to the Reserve Bank of India's overnight variable reverse repo rate auction and on early demand for funds from banks despite ample liquidity in the system. However, dealers expect inflows from month-end spending by the government to ease rates later in the day.  

The government's month-end spending, expected to start today, may lead to inflows of INR 1.25 trillion to INR 1.50 trillion to the banking system this week, dealers said. The one-day call money rate opened at 5.50% Thrusday and, at 0942 IST, the weighted average call rate was 5.54%. The triparty repo rate, where mutual funds are major lenders, opened at 5.35%, and the weighted average triparty repo rate was slightly higher at 5.41%. The triparty repo rate is expected to remain in the range of 5.30-5.50%, while call money rates are expected to be in the range of 5.30-5.55%.

"There is a slight momentum in rates because of the VRRR (variable rate reverse repo auction) but in some time we will see inflows for month-end spending which will keep the rates in check," a dealer at a state-owned bank said. The RBI conducted an overnight variable rate reverse repo auction for INR 500 billion between 0930-1000 IST on Thursday. According to an Informist poll, dealers expect cut offs to be at 5.49% while INR 400 billion is expected to be parked with the RBI. "It seems like the want to keep the rates stricly below 5.50%, any inch up or down from there brings an auction," the dealer said. 

On Wednesday, the net liquidity absorbed by the RBI--a proxy for the systemic liquidity surplus--was INR 2.54 trillion, down from INR 2.54 trillion on Tuesday, central bank data showed. Banks raised the amount of cash reserves parked with the RBI to INR 9.73 trillion on Wednesday from INR 9.62 trillion on Tuesday against the average daily requirement of INR 9.56 trillion for the current fortnight. 

Market participants also await the central bank's draft guidelines on the liquidity management framework, expected to be issued before or during the next monetary policy committee meeting. The guidelines are anticipated to outline the optimal level of liquidity in the banking system that the central bank aims to maintain.

On Friday, the maturity of two variable-rate reverse repo auctions will add another INR 1.71 trillion to the banking system. Dealers expect the central bank to announce another reverse repo auction for Friday with estimates for the amount ranging as wide as INR 1 trillion to INR 2 trillion. (Kabir Sharma)

End

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

Edited by Akul Nishant Akhoury

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