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Informist, Monday, Aug. 4, 2025

 

By Cassandra Carvalho

 

MUMBAI – The weighted average call money market rate ended below the Reserve Bank of India's repo rate of 5.50%, as surplus liquidity in the banking system rose to the highest level in almost a month, following inflows from the government's salary and pension payouts.

 

The one-day call money rate settled at 4.95%, down from 5.00% for two-day loans Saturday. The weighted average rate ended at 5.37%, up from 4.95% Saturday. The weighted average triparty repo rate was at 5.22%, also up from 5.10% the previous day.

 

Primary dealerships and some banks were on the borrowing side, especially in the triparty repo market, dealers said. Mutual funds and insurance companies were sitting on surplus cash due to inflows at the start of the month, and were the major lenders in the triparty repo market, they said. Dealers also said a fall in prices in the equities market last week would've aided inflows into mutual funds.  

 

Some dealers expect the RBI to announce a variable rate reverse repo auction of either INR 500 billion for one day, or for INR 1.00 trillion for two days to be held Tuesday, since the overnight market rates traded below the repo rate Monday. However, other dealers said the central bank was unlikely to announce any such measure until the outcome of the RBI's Monetary Policy Committee meeting Wednesday. Some dealers who expect the MPC to cut rates by 25 basis points Wednesday, said the lack of any VRRR announcement may be interpreted as the central bank paving the way for softer monetary policy.

 

"There are no big outflows this week, but there's one big action," a trader at a primary dealership said. "Let's see if the RBI cuts rates or not, and what they say in the liquidity framework. If they announce a VRRR tomorrow (Tuesday) then accordingly we'll decide the rates." 

 

As per latest RBI data, the central bank net absorbed INR 4.10 trillion from the banking system Sunday. Banks had also increased the funds parked with the RBI as cash reserves to INR 9.73 trillion, from INR 9.71 trillion Saturday. For the current fortnight, which ends on Aug. 8, the daily average cash reserve requirement is INR 9.56 trillion. Later in the week, traders expect outflows of around INR 400 billion to INR 500 billion for tax deducted at source.

 

Some dealers said the central bank likely took delivery of its dollar/rupee buy-sell swaps which matured Monday, and would reflect in the day's money market operations. Informist had Tuesday reported 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 437 billion of rupee liquidity, at the current exchange rate.

 

Traders also await the RBI's new liquidity management framework, which the central bank will likely release at the Monetary Policy Committee meeting outcome Wednesday. The framework is likely to provide clear direction on the newly introduced overnight money market benchmark rate, the Secured Overnight Rupee Rate, dealers said. Traders are awaiting clarity that the RBI will target the overnight weighted average call money rate for its liquidity management. Dealers expect the RBI to define the optimal level of liquidity in the banking system in the draft guidelines. Dealers speculated that the central bank could introduce either daily overnight VRRR and VRR auctions, or a fixed rate repo or reverse repo window system. Some dealers said an alternative to daily fine-tuning options was possible

 

"See, there's no standardised format in the VRRRs and VRRs the RBI is holding," a dealer at a state-owned bank said. "In the GST outflows week, the RBI had both a VRRR and a VRR. In the media, governor is saying he doesn't want to shock the market but the VRRR does shock the market. So, some alternative to this current framework would mitigate some of the effects."

 

OUTLOOK

* Tuesday, the one-day call money rate may open near the RBI's repo rate of 5.50% on demand for funds from banks. However, the announcement, or lack of, a variable rate reverse repo auction for Tuesday may lend cues to borrowing rates. 

* Traders will also track the outcome of the Reserve Bank of India's Monetary Policy Committee meeting Wednesday.  

* During the day, the call rate is seen in a range of 4.70-5.50%, dealers said.

 

CALL RATE

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

5.45%--Monday's open for one-day loans

5.00%--Saturday's close for two-day loans

 

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

 

TENURE	MONDAY	FRIDAY
Overnight	5.43	5.50
3-day	--	--
14-day	5.75	5.75
1-month	5.99	6.00
3-month	6.09	6.10

 

 

---

India Call:Below repo rate as surplus liquidity surges above INR 3.5 tln Fri

 

MUMBAI – The surplus liquidity in the banking system rose to the highest level since Jul. 6, following inflows from the government's salary and pension payouts. As a result, borrowing needs contracted, which was reflected in the low rates in the call money market Monday. The rates are expected to decline further in the day after the early rush for funds subsides, dealers said. Some small finance banks and primary dealers were predominant borrowers, they said.

 

"It was expected only that the surplus would again cross INR 3 trillion, major chunk of the month-end inflows entered the system on Friday," a dealer at a state-owned bank said. "RBI can hold a VRRR auction because there are no big payments for now and the (call money market) rate can fall below the SDF (Standing Deposit Facility) rate."

 

The one-day call money market rate was 5.45% at 0920 IST and the weighted average rate was also at the same level. The rate in the larger triparty repo rate market was 5.24%, below the RBI's Standing Deposit Facility rate of 5.25%. Traders expect the RBI to hold a variable rate reverse repo auction if the call rate falls below the Standing Deposit Facility rate, dealers said. If the RBI holds a VRRR auction, traders see aggressive participation from banks as they will be able to park funds at higher than current market levels, they said.

 

"Rates are below SDF in TREPs, so there is opportunity to earn good spread if there is a VRRR auction," a dealer at a private sector bank said. "The way RBI has been active lately, it looks like there can be more (variable rate reverse repo) auctions."

 

As per latest RBI data, the central bank net absorbed INR 3.65 trillion from the banking system Friday. Banks had also increased the funds parked with the RBI as cash reserves to INR 10.08 trillion from INR 9.96 trillion Thursday. For the current fortnight, which ends on Aug. 8, the daily average cash reserve requirement is INR 9.56 trillion.

 

The Reserve Bank of India's Monetary Policy Committee's three-day policy review meeting starts Monday. Traders widely expect the central bank to keep the policy rates unchanged, with no change in stance after the larger-than-expected 50 basis points cut in repo rate in June. Traders also await the RBI's liquidity management framework which is expected to be detailed on Wednesday. The draft guidelines will likely indicate the optimal level of liquidity for the banking system. Some traders also expect the RBI to provide clarity on the Secured Overnight Rupee Rate--the newly introduced overnight money market benchmark rate, dealers said. 

 

The RBI's dollar/rupee buy-sell swaps are set to mature Monday. Traders expect the central bank 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 infusing $5 billion into the financial system while simultaneously taking out around INR 437 billion of rupee liquidity, at the current exchange rate.

 

"There is more than enough liquidity for RBI not to rollover the buy-sell swaps and then maybe by Tuesday we will see the liquidity around INR 3 trillion. From the regular VRRR and VRR auctions, it looks like the central bank is comfortable if the liquidity surplus stays above INR 2.5 trillion," the dealer at the private sector bank said. (Vidhushi RajPurohit)

 

End

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

 

Edited by Avishek Dutta

 

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