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Informist, Wednesday, Aug. 20, 2025

 

By Srijita Bose

 

MUMBAI – The interbank call money rate ended near the Reserve Bank of India's repo rate of 5.50% due to demand for funds Wednesday, dealers said. The triparty repo rate ended above the RBI's repo rate on fear that rates may be higher Thursday due to outflows related to goods and services tax, they said. 

 

The one-day call money market rate settled at 5.47%, compared with 5.00% Tuesday. The call rate moved in the range of 4.75-5.55% Wednesday. The weighted average call money rate was 5.47%, up from 5.43% Tuesday. The triparty repo market rate closed at 5.61%, up from 5.25% Tuesday. The weighted average rate in the triparty repo market was at 5.40%, up from 5.34% Tuesday.

 

"The GST outflows have already started and rates could go up more tomorrow and day after because there is also around INR 2 trillion of funds parked in VRRRs (variable rate reverse repo auctions)," a dealer at a private sector bank said. "PDs (primary dealers) were the major borrowers."

 

Demand for funds was higher from primary dealers and banks due to GST outflows, dealers said. Traders have estimated the GST payment to drain around INR 1.75 trillion to INR 1.85 trillion from the banking system, and as per the latest RBI data, the surplus systemic liquidity, as indicated by the central bank's net absorption of funds, was at INR 2.99 trillion Tuesday. The liquidity drain due to the GST outlfows is seen bring down the liquidity surplus below 1% of banks' net demand and time liabilities, which is currently around INR 2.33 trillion, as per latest data. While announcing the April monetary policy, RBI Governor Sanjay Malhotra had identified the banking system liquidity in excess of 1% of banks' net demand and time liabilities as a comfortable level for policy rate-cut transmission.

 

Some traders expect the RBI to come up with a variable rate repo auction to prevent market rates from shooting sharply higher than the repo rate, dealers said. The RBI post market hours announced an INR 500-billion overnight variable rate repo auction Thursday. 

 

"It is also a reporting Friday and there is gilts auction too," a dealer at a state-owned bank said. "Another thing is that there are also short dollar positions of the RBI which may be redeemed. Let's see now if RBI brings a VRR to give some support."

 

Traders tracked the liquidity surplus closely as some of the short forward dollar positions of the RBI are likely to mature this week, dealers said. Until the end of September, the net short forward dollar positions of the central bank in the foreign exchange market amounted to $11.85 billion, data from RBI showed.

 

Demand from mutual funds picked up in the triparty repo market ahead of the scheduled outflows, delaers said. Demand for funds was also higher on account of some banks' requirement for funds to maintain cash reserves with the RBI as the current reporting fortnight ends Friday. Demand from primary dealers was also higher ahead of the INR 360-billion gilt auction Friday, some dealers said. 

 

On Tuesday, banks maintained INR 9.40 trillion with the RBI, lower than the mandated average daily requirement of INR 9.58 trillion for the current fortnight ending Friday. So far in the current fortnight, banks have maintained an average of INR 9.67 trillion with the RBI as cash reserves. 

 

OUTLOOK

* On Thursday, the one-day call money rate may open above the RBI's repo rate of 5.50% on demand for funds ahead of GST outflows. 

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

* During the day, the call rate is seen in the range of 4.80-5.70%, dealers said.

 

CALL RATE

5.47%--Wednesday's close for one-day loans

5.55%--Wednesday's open for one-day loans

5.00%--Tuesday's close for one-day loans

 

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

 

TENURE	WEDNESDAY	TUESDAY
Overnight	5.52	5.48
3-day	--	--
14-day	5.74	5.73
1-month	6.00	5.99
3-month	6.10	6.11

 

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India Call: Above repo on high demand for funds in early trade, active PDs

 

MUMBAI – The interbank call money market rate was above the Reserve Bank of India's repo rate due to high demand for funds from primary dealerships even as most lenders in the market remained on the sidelines, dealers said. Rates were also higher as banks have locked up INR 2.06 trillion with the central bank under variable rate reverse repo auctions. Demand for funds was also higher in early trade on account of some banks' requirement for funds to maintain cash reserves with the RBI as the current reporting fortnight ends Friday, they said. 

 

"There is an early rush in the market for funds right now and that's why rates are elevated," a dealer at a state-owned bank said. "There can be some outflows for GST today (Wednesday) as well, so that could also be a reason for the high rates, but we expect the major outflows to take place tomorrow (Thursday)."

 

At 0915 IST, the one-day call money market rate was at 5.55%. The weighted average rate was also at 5.55%, slightly higher than 5.50% at the same time Tuesday. The rate in the triparty repo market was 5.35% and the weighted average rate was also at the same level. The weighted average rates are expected to remain around the same range as a large chunk of banks' funds parked with the RBI will not return to the banking system until Friday, dealers said. Some traders also expect outflows for the goods and services tax payout to commence Wednesday, which will also likely keep the market rates from sliding sharply down during the day. 

 

Traders have pegged the GST payment to drain around INR 1.75 trillion to INR 1.85 trillion from the banking system, and as per the latest RBI data, the surplus systemic liquidity, as indicated by the central bank's net absorption of funds, was at INR 2.99 trillion Tuesday. Post the outflows, some traders expect the RBI to come up with a variable rate repo auction to prevent the market rates from shooting sharply higher than the repo rate, dealers said. RBI Governor Sanjay Malhotra while announcing the April monetary policy had identified the banking system liquidity in excess of 1% of banks' net demand and time liabilities as comfortable level for policy rate-cut transmission. According to the latest data, 1% of net demand and time liabilities would put the liquidity surplus at around INR 2.33 trillion.

 

"The RBI can hold a VRR if rates remain above repo after the outflows, but that will depend on how much the actual outflows are and whether there will be strong need for funds then," a dealer at a private sector bank said. 

 

On Tuesday, banks maintained INR 9.40 trillion with the RBI, lower than the mandated average daily requirement of INR 9.58 trillion for the current fortnight ending Friday. So far in the current fortnight, banks have maintained an average figure of INR 9.67 trillion with the RBI as cash reserves.  (Vidhushi RajPurohit)

 

End

 

US$1 = INR 87.07

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

 

Edited by Avishek Dutta

 

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