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Informist, Thursday, Aug. 7, 2025

MUMBAI – The overnight triparty repo rate spiked to above the Marginal Standing Facility rate of 5.75% due to high demand for funds from banks and a lack of support from mutual funds, the largest lenders in the market, after 1430 IST, dealers said. The rate jumped to 6.00% for only the second time since the end of June.

"It is a combination of factors: banks are on the borrowing side after they have parked funds at the VRRR (variable rate reverse repo) auctions in the last two days, and reporting Friday is coming up," a head of balance sheet management at a private bank said. "Mutual funds try to deploy all their cash by 1430 IST as the market is mostly dead after that, nobody wants to wait for the last minute."

The overnight triparty repo rate was at 5.34% at 1430 IST, but ended at 5.80% at 1600 IST, the highest closing level since Apr. 29. The Reserve Bank of India extended the market timings of the triparty repo market to 1600 IST from 1430 IST from Aug. 1. Nearly INR 509 billion was traded in the overnight triparty repo contract after 1430 IST Thursday, the highest since Friday when the extension came into effect and up 21% from the previous day.

"Usually we try to settle our excess funds by 1430 IST, and today (Thursday) also most trades would have been done by then," a dealer at a mutual fund said. "It was a sudden jump as after 1430 IST most (fund houses) only have a small quantum to lend."

Banks had deployed nearly INR 2.4 trillion in the RBI's variable rate reverse repo operations of various tenures by Wednesday. A proxy for the banking system liquidity surplus as of Wednesday was INR 3.91 trillion. When the central bank conducted another INR-500-billion VRRR auction Thursday, banks parked another INR-490.55-billion at a cut-off rate of 5.49%. At that time, the overnight triparty repo rate was hovering at 5.34-5.37%.

With most of the surplus liquidity tied up, banks were on the borrowing side amid scheduled outflows in the form of tax deducted at source and excise duty payments worth around INR 400 billion to INR 500 billion starting Thursday. Moreover, some banks were also borrowing funds to meet their statutory cash reserve ratio requirements, with the reporting Friday coming up, dealers said. The strain from this was limited on the overall system as banks had maintained an average cash balance of INR 9.64 trillion in the reporting fortnight up to Wednesday, against a requirement to hold INR 9.56 trillion.

An unexpected liquidity strain may have come from the RBI's foreign exchange operations, when it had sold dollars on Tuesday to limit a fall in the rupee. Forex dealers estimated the size of the net intervention at $1 billion-$2 billion on Tuesday, which would result in an outflow of around INR 85 billion to INR 175 billion of rupee liquidity Thursday as the trade is settled on a 'T+2' basis.

"It looks like RBI's FX (foreign exchange) intervention because it (RBI) has been supporting rupee amidst all this tariff business," a dealer at a state-owned bank said. "This jump (in rates) you are seeing is a mix of all the recent VRRRs, tomorrow's (Friday's) reporting needs and no one available on the lending side."  End

US$1 = INR 87.70

Reported by Vidhushi RajPurohit and Aaryan Khanna

Edited by Saji George Titus

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