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Informist, Thursday, Jul 18, 2024

By Richard Fargose

MUMBAI – The inter-bank call money market rate ended below the Reserve Bank of India's standing deposit facility rate of 6.25% as demand for funds remained weak amid the widening of the liquidity surplus in the banking system, dealers said. The one-day call money rate ended at 5.75%, unchanged from Tuesday for two-day loans. Indian financial markets were closed on Wednesday on account of Muharram.

The liquidity surplus in the banking system widened to 1.15 trln rupees on Wednesday from 828.75 bln rupees on Monday, data from the RBI showed.

As money market rates hovered below the repo rate due to weak demand for funds, the central bank stepped in with two overnight variable rate reverse repo tenders today for notified amounts of 250 bln rupees each. Banks parked 250.07 bln rupees in the first tender and 203.53 bln rupees in the second. Both tenders will reverse on Friday.

Earlier this week, the central bank drained 622.29 bln rupees through two variable rate reverse repo auctions on Monday and Tuesday. Both tenders will also reverse on Friday.

Dealers said likely inflows on account of government spending widened the liquidity surplus in the banking system. Market participants said government spending, which was muted for three to four months due to the General Elections, will speed up ahead of the Budget. The full Budget for 2024-25 (Apr-Mar) is scheduled to be presented on Tuesday.

The following are the other highlights:

* The weighted average call rate was 6.47% against 6.48% on Tuesday.

* The weighted average rate for triparty repo was 6.40% as compared to 6.38% on Tuesday.

* Reversal of the standing deposit facility added 632.23 bln rupees to the banking system, while reversal of the marginal standing facility drained 59.20 bln rupees.

OUTLOOK

* On Friday, the three-day call money rate may open near the RBI's repo rate of 6.50% because of the demand for funds from banks in early trades.

* However, the rates may ease intraday owing to prevailing surplus liquidity in the banking system.

* During the day, the call rate is seen in a range of 6.20-6.75%, dealers said.

CALL RATE

5.75%--Today's close for one-day loans

6.55%--Today's open for one-day loans

5.75%--Tuesday's close for two-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Slightly above repo rate as liquidity surplus narrows

MUMBAI – The interbank call money market rate was above the Reserve Bank of India's repo rate of 6.50% due to demand for funds from banks in early trade, dealers said. The two-day call money rate was at 6.55% at 0920 IST, against 5.75% at close on Monday for one-day loans.

Indian financial markets will be closed on Wednesday on account of Muharram.

The liquidity surplus in the banking system narrowed to 828.75 bln rupees on Monday from 938.71 bln rupees on Sunday, data from the RBI showed. The surplus narrowed due to outflows of 220 bln rupees on Monday towards gilts auctioned on Friday. 

Market participants said that due to the prevailing liquidity surplus in the banking system, the RBI might announce a shorter tenure variable rate reverse repo today.

On Monday, the central bank conducted a 750-bln-rupee four-day variable rate reverse repo auction. Banks parked 372.20 bln rupees at the tender at a cut-off rate of 6.49%.

With the system flush with liquidity, banks maintained higher cash balances with the central bank. They maintained 9.98 trln rupees on Monday, higher than the average daily cash reserve requirement of 9.89 trln rupees for the current fortnight ending Jul 26, according to the data. 

Usually, banks prefer to maintain higher cash balances with the central bank at the start of the reporting fortnight, which eases pressure on them to make up for it in the latter part. 

The following are the other highlights:

* The weighted average call rate was 6.55%, against 6.47% on Monday.

* The weighted average rate for triparty repo was 6.38%, as against 6.34% on Monday.

* Reversal of the standing deposit facility added 521.29 bln rupees to the banking system, while reversal of the marginal standing facility drained 18.54 bln rupees. 

* The call rate is seen in a range of 6.20-6.70% during the day. (Richard Fargose)

End

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

Edited by Saji George Titus

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