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Informist, Thursday, Aug. 7, 2025

 

By Cassandra Carvalho

 

MUMBAI – The interbank call money market rate ended below the Reserve Bank of India's Standing Deposit Facility rate of 5.25%. However, rates rose sharply above the Marginal Standing Facility rate of 5.75% during the day, as mutual funds did not lend funds in the triparty repo market as aggressively as expected and banks likely parked an excessive amount of funds at the RBI's overnight variable rate reverse repo auction, dealers said.  

 

The call money market rate settled at 4.95%, touching the day's high of 6.00%, from 4.90% at Wednesday's close. The weighted average call money rate was at 5.44%, higher than 5.33% Wednesday. The rate in the triparty repo market closed at 5.80%--the highest closing level since Apr. 29.--with the weighted average rate at 5.39%, compared with a weighted average rate of 5.20% the previous session. The triparty repo rate jumped to 6.00% for only the second time since the end of June.   

 

"Mutual funds shut shop at 2 o'clock and banks deployed too much funds in the VRRR," a dealer at a state-owned bank said. "All banks were depending on the TREPs market for funds in emergency, when they parked the funds at the VRRR, but there were barely any lenders and too many borrowers in the market so rates shot up."

 

Mutual funds likely deployed their funds in equity markets and did not lend in the triparty repo market after around 1400 IST, contrary to what banks had expected since mutual funds have recently been aggressively lending in the triparty repo market.  

 

The RBI conducted an overnight VRRR auction of INR 500 billion Thursday and the central bank took all INR 490.55 billion worth of offers. 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. 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.

 

In the repo market, the rate on the benchmark 10-year 6.33%, 2035 gilt fell to a low of 0.01% in early trade and the weighted average rate on the bond was 3.59%, as traders who had to cover their short bets placed on the bond Wednesday did not find sellers at current price levels in the secondary gilt market, dealers said. 

 

"Short-covering was definitely there since no one wanted to sell at current market levels when they had bought the bond (6.33%, 2035 bond) at 6.33%-6.35% yield level," a dealer at another state-owned bank said. 

 

OUTLOOK

* Friday, the three-day call money rate may open near the RBI's repo rate of 5.50% due to the notice of the two variable rate reverse repo auctions.

* RBI will hold a three-day variable rate reverse repo auction for INR 1 trillion at 1030-1100 IST, and a six-day VRRR auction for INR 2 trillion at 0930-1000 IST Friday. Traders had expected a single seven-day VRRR auction of INR 2.00 trillion and had expected shorter-term VRRRs to be conducted next week. 

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

 

CALL RATE

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

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

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

 

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

 

TENURE	THURSDAY	WEDNESDAY
Overnight	5.39	5.37
3-day	--	--
14-day	5.72	5.74
1-month	5.99	5.99
3-month	6.09	6.09

 

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India Call: Below repo rate as surplus liquidity remains near INR 4 tln

 

MUMBAI – The interbank call money rate opened below the Reserve Bank of India's repo rate as surplus liquidity in the banking system remained near INR 4 trillion, dealers said. Funding demand from banks remained muted owing to ample systemic liquidity, while primary dealerships were seen majorly on the borrowing side, they said. Rates are expected to cool down later in the day on account of a dearth of major outflows. 

 

Traders expect a slight rise in the trading volume for the two-day to four-day tenure in the call money market as primary dealerships are expected to borrows funds ahead of the INR-250-billion government bonds auction Friday. "Overnight rates will fall as you see every day, now in the morning because of VRRR auction and PDs' (primary dealerships) demand the rate is at 5.40%," a dealer at a state-owned bank said. 

 

At 0930 IST, the one-day call money market rate was at 5.40%, with the weighted average rate also at the same level. The rate in the larger triparty repo market was at 5.34%, and the weighted average rate at 5.33%. 

 

As per the latest RBI data, the central bank net absorbed INR 3.91 trillion from the banking system Wednesday, little changed from the INR 3.97 trillion Tuesday. Banks lowered the cash reserve parked with the RBI after having already maintained higher than the mandated average daily requirement for the current fortnight which ends Friday, dealers said. The cash balance parked with the RBI was at INR 9.24 trillion Tuesday, while the average daily requirement was at INR 9.56 trillion. So far, in this fortnight banks have maintained an average daily sum of INR 9.68 trillion. 

 

On account of ample systemic liquidity surplus, dealers expect the the overnight variable rate reverse repo auction for INR 500 billion to be fully subscribed. The cut-off at the auction is estimated to be at INR 5.49%. "It is overnight and I can get 5.49% rate which is higher than what market is offering and there is no major requirement for funds today," a dealer at a private sector bank said. 

 

Traders also expect outflows for tax deducted at source and excise duty payment likely to commence Thursday. However, they don't expect the outflows to strain the surplus liquidity. They estimate the outflows to be around INR 400 billion to INR 500 billion. (Vidhushi RajPurohit)

 

End

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

 

Edited by Akul Nishant Akhoury

 

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