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Informist, Tuesday, Aug. 26, 2025

By Srijita Bose

MUMBAI – The two-day interbank call money rate ended at the Reserve Bank of India's repo rate of 5.50% due to demand for funds ahead of the holiday on Wednesday, with the demand likely from a single bank or primary dealer, dealers said. Money markets are shut on Wednesday for Ganesh Chaturthi. 

"The last trade was a single person, which led to a higher close," a dealer at a state-owned bank said. "But the rush is not there and though the weighted average rate is still on the higher end, rates will come lower over the week." The extension of the deadline for filing goods and services tax returns to Aug. 27 for businesses in some parts of Maharashtra may have also led to a surge in demand at the end of the day, a dealer said. 

Barring the last few trades, call rates had fallen sharply below the RBI's Standing Deposit Facility near the end of trade. However, the weighted average call rate was near the repo rate, with banks having already parked INR 757.81 billion with the RBI under a variable rate reverse repo auction on Friday, dealers said. 

The weighted average call rate ended at 5.44% Tuesday, as against 5.45% on the previous day. The weighted average triparty repo rate was at 5.36%, against 5.39% Monday. The two-day call money market rate settled at 5.50%, up from the one-day close of 4.95% Monday. The call rate moved in the range of 4.75-5.50% Tuesday. The triparty repo market rate closed at 5.25%, up from 5.18% Friday.

Demand from mutual funds for funds was there in the triparty repo market due to month-end redemption pressures, dealers said. Dealers expect rates in the triparty repo market to rise near the repo rate by the end of the week, they said.

Surplus liquidity in the banking system, as indicated by the central bank's net absorption of funds, was at INR 1.80 trillion on Monday, slightly higher than INR 1.64 trillion on Sunday. Banks maintained a slightly lesser cash balance with the central bank Monday at INR 9.63 trillion, compared with 9.94 trillion Sunday. The liquidity surplus has fallen below 1% of banks' net demand and time liabilities, which is at INR 2.35 trillion, according to the latest data. While announcing the April monetary policy, RBI Governor Sanjay Malhotra had indicated that banking system liquidity in excess of 1% of banks' net demand and time liabilities was comfortable for policy cut transmission. 

Dealers said the government's month-end flows had already begun due to the truncated week, which also led to the fall in rates near the end of the day. "My sense is that Wednesday liquidity will increase because some month-end inflows have already come in today," a dealer at another state-owned bank said. 

Dealers said the chances of the central bank conducting a variable repo auction were slim, though some traders expected the RBI to conduct a VRRR auction of INR 1.5 trillion to INR 2.0 trillion Friday. However, post-market hours Tuesday, the RBI announced that it will conduct an overnight VRRR auction for INR 750 billion Thursday, which most market participants had not expected. 

OUTLOOK

* Money markets are shut on Wednesday. On Thursday, the one-day call money rate may open above the RBI's repo rate of 5.50% on demand for funds. 

* RBI to hold overnight VRRR auction for INR 750 billion 0930-1000 IST Thursday.  

* During the day, the call rate is seen in the range of 4.70-5.60%, dealers said.

CALL RATE

5.50%--Tuesday's close for two-day loans

5.45%--Tuesday's open for two-day loans

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

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Weighted average rates remain high as liquidity surplus narrows

MUMBAI – Weighted average rates in the money market remained high Tuesday on account of a narrow liquidity surplus in the banking system post outflows for goods and services tax payouts, dealers said. Rates were also higher in early trade as participants were borrowing aggressively ahead of the holiday Wednesday on account of Ganesh Chaturthi, they said.

Primary dealerships and some small state-owned banks formed the majority of borrowers. Participants on the lending front were few as banks had already locked up funds with the Reserve Bank of India under its seven-day variable rate reverse repo auction and mutual funds, which are major lenders in the triparty repo market, are facing month-end redemption pressure.

At 0920 IST, the two-day call money market rate was at the RBI's repo rate of 5.50%. The weighted average rate was also at the same level. The rate in the triparty repo market was 5.42% and the weighted average triparty repo rate was 5.40%, slightly higher than 5.38% at the same time Monday.

"Redemption pressures of the mutual funds won't affect triparty repo rate to a high extent. We see rates elevated in the morning mostly as banks will require funds for their cash reserves and not lend that actively while some MFs are still ready to lend," a dealer at a private sector bank said.

Rates are expected to remain slightly elevated as lenders will likely charge higher interest for giving away funds for two-day tenure, dealers said. However, rates are expected to cool off later in the day due to the early inflows of salary and pension payments in Maharashtra and Kerala on account of the holidays in these states for Ganesh Chaturthi and Onam, respectively, dealers said. Traders have pegged the total month-end inflows for August at around INR 1.5 trillion.

As per latest data, RBI net absorbed INR 1.80 trillion Monday, higher than INR 1.64 trillion Sunday. The surplus liquidity in the banking system rose slightly Monday as banks reduced their cash reserves with the central bank to INR 9.63 trillion, from INR 9.94 trillion Sunday. The mandated average daily cash reserve requirement for the current fortnight, which started Saturday, is INR 9.63 trillion.  

The chances of the central bank conducting a variable repo auction remain slim, dealers said. Despite the surplus liquidity narrowing, borrowing rates are not going higher than the repo rate owing to lack of major outflows, which are expected to limit the need for the central bank to infuse liquidity into the banking system, they said.

"This is a temporary crunch, and liquidity is quite decent considering there is no pressing need for any major funds," a dealer at a state-owned bank said. "It (RBI) might not hold a VRR right now because by next week there will be inflows and the surplus will again rise."  (Vidhushi RajPurohit and Shravani Chandiwade)

End

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

Edited by Saji George Titus

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