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Informist, Friday, Jul 26, 2024

By Richard Fargose

MUMBAI - The interbank call money market rate ended sharply below the Reserve Bank of India's standing deposit facility rate of 6.25% as demand for funds eased towards the end amid widening of the liquidity surplus in the banking system, dealers said. The three-day call money rate ended at 5.75%, unchanged from Thursday for one-day loans.

The liquidity surplus in the banking system widened to 859.21 bln rupees on Thursday from 587.03 bln rupees on Wednesday, data from the RBI showed. Dealers said the surplus widened because of inflows on account of government spending and tax refunds from the government this week. Liquidity got a further boost today due to scheduled redemption of 8.40%, 2024 gilt worth 609.45 bln rupees, they said.

Owing to improvement in the liquidity conditions, the weighted average call rate also eased to 6.48% from 6.56% on Thursday.

However, despite a huge liquidity surplus, banks parked only 234.20 bln rupees at today's 14-day variable rate reverse repo auction for a notified amount of 1.5 trln rupees.

Dealers said most banks preferred not to park funds in the 14-day window, and were expecting a shorter tenure reverse repo auction today. However, as the RBI didn't announce another reverse repo auction, banks with excess funds were lending it at lower rates, they said.

Banks are expected to maintain higher cash balances with the central bank for the weekend due to the start of the new reporting fortnight from Saturday. They maintained 9.83 trln rupees on Thursday compared to 9.89 trln rupees, the average daily cash reserve requirement for the current fortnight ending today.

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 6.48% as against 6.56% on Thursday.

* The weighted average rate for triparty repo was 6.38% as compared to 6.45% on Thursday.

* Reversal of the standing deposit facility added 894.89 bln rupees to the banking system, while reversal of the marginal standing facility drained 28.07 bln rupees.

OUTLOOK

* Money markets are shut this Saturday. 

* On Monday, the one-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 trade.

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

* During the day, the call rate is seen in a range of 6.20-6.80%, dealers said.

CALL RATE

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

6.50%--Today's open for three-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above RBI's repo rate; liquidity surplus widens further

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% due to demand for funds from banks in early trades, dealers said. The three-day call money rate was 6.55% as of 0930 IST, against 5.75% at close on Thursday for one-day loans.

The liquidity surplus in the banking system widened to 859.21 bln rupees on Thursday from 587.03 bln rupees on Wednesday, data from the RBI showed. Dealers said the surplus widened because of inflows on account of government spending and tax refunds from the government. 

The liquidity surplus is expected to widen further due to scheduled redemption of the 8.40%, 2024 gilt worth 609.45 bln rupees today.

Today, the central bank will conduct a 14-day variable rate reverse repo auction for a notified amount of 1.5 trln rupees between 1030 and 1100 IST. 

Dealers said as the RBI is regularly conducting shorter tenure reverse repo auctions, banks might not prefer to park huge amounts at today's 14-day reverse repo tender.

"Despite liquidity being in huge surplus, very few will be interested in blocking their funds for 14 days," said a dealer with a private bank. "Most likely, the RBI will announce a shorter tenure reverse repo later today."

Banks are expected to maintain higher cash balances with the central bank for the weekend due to the start of the new reporting fortnight from Saturday. They maintained 9.83 trln rupees on Thursday compared to 9.89 trln rupees, the average daily cash reserve requirement for the current fortnight ending today.

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.

Following are the other highlights:

* The weighted average call rate was 6.55%, against 6.56% on Thursday.

* The weighted average rate for triparty repo was 6.41%, against 6.45% on Thursday.

* Reversal of the standing deposit facility added 894.89 bln rupees to the banking system, while reversal of the marginal standing facility drained 28.07 bln rupees. 

* The call rate is seen in a range of 6.20-6.80% during the day. (Richard Fargose)

End

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

Edited by Vandana Hingorani

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