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Informist, Wednesday, Aug. 6, 2025

By Vidhushi RajPurohit

MUMBAI – The interbank call money market rate ended below the Reserve Bank of India's Standing Deposit Facility rate of 5.25% as liquidity in the banking system continued to be abundant. Meanwhile, the monetary policy outcome Wednesday had little impact on the money market as the Monetary Policy Committee left the policy repo rate unchanged, dealers said.

"There was no reaction in the (money) market, as everyone was thinking that rates would be left the same," a dealer at a state-owned bank said. "I was expecting something on liquidity, but this time they did not give any targeted levels like last time." In the June policy, RBI Governor Sanjay Malhotra had indicated 1% of banks' net demand and time liabilities as a comfortable level of liquidity for interest rate-cut transmission. 

The call money market rate settled at 4.90%, unchanged from Tuesday's close. The weighted average call money rate was at 5.33%, slightly lower than 5.36% Tuesday. The rate in the triparty repo market closed at 5.00%, with the weighted average rate at 5.20%. The rates did not rise above the repo rate of 5.50% throughout the day as the surplus liquidity in the banking system was high, dealers said.  

While the RBI did not indicate any optimal liquidity level for the banking system, an internal working group of the RBI, set up to review the liquidity management framework, suggested retaining the weighted average call rate as the operating target for the monetary policy. 

On Wednesday, Malhotra said the current systemic liquidity remains comfortable, which has reinforced transmission of the policy repo rate cuts to the money, bond and credit markets during the current easing cycle. According to the latest RBI data, the central bank net absorbed INR 3.97 trillion from the banking system Tuesday, similar to INR 4.00 trillion Monday.

"The way the governor talked about weighted average rates, it looks like they will announce VRR and VRRR (variable rate repo and variable rate reverse repo) auction based on where the rates are and maybe it will be comfortable with liquidity as long as rates stay near repo," a dealer at another state-owned bank said. 

On Wednesday, the central bank conducted a two-day variable rate reverse repo auction for INR 1 trillion. The RBI accepted all offers worth INR 677.55 billion at a cut-off rate of 5.49%. "The auction was not fully subscribed as we were thinking the (money market) rates can go up after the auction," a dealer at a private sector bank said. 

Post market hours, the central bank announced an overnight variable rate reverse repo auction for INR 500 billion to be held Thursday. Traders expect outflows of around INR 400 billion to INR 500 billion for tax deducted at source and excise duty payment to likely commence Thursday.

OUTLOOK

* Thursday, the one-day call money rate may open near the RBI's repo rate of 5.50% on the variable rate reverse repo auction notice.

* RBI will hold an overnight variable rate reverse repo auction for INR 500 bln 0930-1000 IST Thursday.

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

CALL RATE

4.90%--Wednesday's close for one-day loans

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

4.90%--Tuesday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Below repo as surplus liquidity remains high; MPC outcome eyed

MUMBAI – The interbank call money rate opened below the repo rate of 5.50% ahead of the Reserve Bank of India's Monetary Policy Committee meeting outcome. During the day, traders are expected to take cues from the rate-setting panel's decision and the central bank's commentary on systemic liquidity, dealers said. Some traders are of the view that owing to ample surplus liquidity in the banking system, the central bank could announce a variable rate reverse repo auction after policy outcome, provided the rates fall sharply below the RBI's Standing Deposit Facility rate of 5.25%. 

At 0930 IST, the one-day call money rate was at 5.35%, and the weighted average rate was at 5.37%. The weighted average triparty repo – a larger market that includes mutual funds – rate was at 5.17%, sharply lower than the Standing Deposit Facility rate.

Most money market participants expect the rate-setting panel to keep the policy rates unchanged and expect the RBI to provide a forward looking guidance on systemic liquidity. "What they say about liquidity and at what level of surplus they consider comfortable will be important for now," a dealer at a private sector bank said. "It looks like rates will be kept same but we cannot say for sure also because last MPC also was a surprise."

The rate-setting panel delivered a larger-than-expected 50 basis points cut in repo rate at the June policy meet. According to an Informist poll of 17 economists, 14 said they expect the Monetary Policy Committee to leave the repo rate unchanged at 5.50% Wednesday. However, three poll participants said a rate cut remains a possibility after retail inflation fell to an over-six-year low of 2.10% in June and averaged 2.7% in Apr-Jun, 20 basis points lower than the central bank's projection and well below its mandated target of 4.0%.

According to the latest RBI's data, the central bank net absorbed INR 3.97 trillion from the banking system Tuesday, little changed from INR 4.00 trillion Monday. Even as the surplus liquidity hovers around INR 4 trillion, the overnight Mumbai Interbank Offered Rate has been set above 5.40%. Dealers reasoned that this is on account of the funding needs from primary dealerships at the start of trading hours. 

"In the morning PDs (primary dealers) are the ones in the borrowing side and they are willing to take the funds at 5.40%," a dealer at a state-owned bank said, adding, "And MIBOR rates are published in the morning so it does not take into account when the call rates go down later in the day. This week there was also some who were expecting VRRR auction, so that could also be a reason."   End

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

Edited by Saji George Titus

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