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Informist, Monday, Aug 5, 2024

By Richard Fargose

MUMBAI – The interbank call money market ended well below the Reserve Bank of India's standing deposit facility rate of 6.25% as demand for funds from banks eased with the liquidity surplus widening to its highest level in over two years, dealers said.

The one-day call money rate ended at 5.75%, unchanged from Saturday for two-day loans.

The liquidity surplus in the banking system widened to 2.78 trln rupees on Saturday, the highest since Jul 6, 2022, data from the RBI showed. Last week, inflows on account of the government's month-end spending have boosted the liquidity in the banking system, dealers said. Inflows of around 1.50 trln rupees from the spending have hit the banking system, they added.

A report from Emkay Global Financial Services today said that currency in circulation moderated in July, and this trend is expected to continue until the festival season, providing further support to system liquidity going forward.

The RBI today conducted a four-day variable rate reverse repo operation for a notified amount of 1 trln rupees. At the auction, banks parked 789.55 bln rupees at a cutoff rate of 6.49%. There are three variable rate reverse repo tenders worth 1.62 trln rupees outstanding, which will be reversed on Friday. 

Banks maintained lower cash balances with the RBI over the weekend. They maintained 9.73 trln rupees on Sunday, lower than the average daily cash reserve requirement of 9.81 trln rupees for the current fortnight ending Aug 9, according to the data. 

"This week, the liquidity surplus is expected to ease marginally due to outflows from indirect tax collections amid tepid government spending after aggressive spending in the previous week," said a dealer with a private bank. Market participants expect around 500-600 bln rupees outflows on account of excise tax payment later this week.

However, the RBI is likely to continue conducting daily variable rate reverse repos, with maturities on the reporting Friday on Aug 9, to anchor money market rates around the repo rate of 6.5%, dealers said.

The following are the other highlights:

* The weighted average call rate was 6.44%, against 6.08% on Saturday.

* The weighted average rate for triparty repo was 6.18%, as against 5.82% on Saturday.

* Reversal of the standing deposit facility added 2.09 trln rupees to the banking system, while reversal of the marginal standing facility drained 10.40 bln rupees. 

OUTLOOK

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

* 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 open-day loans

6.55%--Today's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate as liquidity surplus highest since Aug 10

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 6.50% as the liquidity surplus widened further on account of the government's month-end spending, dealers said. The one-day call money rate was at 6.45% at 0945 ST, against 5.75% for two-day loans on Saturday.

The liquidity surplus in the banking system widened to 2.56 trln rupees on Friday, the highest since Aug 10, from 1.97 trln rupees on Thursday, data from the RBI showed. Last week, inflows on account of the government's month-end spending have boosted the liquidity in the banking system, dealers said. Inflows of around 1.50 trln rupees from the spending has hit the banking system, they added.

Banks continued to maintain higher cash balances with the RBI amid surplus liquidity in the banking system. They maintained 9.91 trln rupees on Friday, higher than the average daily cash reserve requirement of 9.81 trln rupees for the current fortnight ending Aug 9, according to the data. 

Most market participants expect the RBI to announce a shorter tenure variable rate reverse repo today to drain the excess liquidity in the banking system.

On Friday, the central bank conducted a 1.5-trln-rupee, 7-day variable rate reverse repo auction. However, banks parked only 598.60 bln rupees at the auction at a cut-off rate of 6.49%.

Today, outflows of 176.97 bln rupees will take place towards gilts auctioned on Friday. Other than that, no major inflows or outflows are expected today, dealers said.

The following are the other highlights:

* The weighted average call rate was 6.55%, against 6.08% on Saturday.

* The weighted average rate for triparty repo was 6.26%, as against 5.82% on Saturday.

* Reversal of the standing deposit facility added 508.98 bln rupees to the banking system, while reversal of the marginal standing facility drained 7.50 bln rupees. 

* The call rate is seen in a range of 6.20-6.60% during the day. (Richard Fargose)

End

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

Edited by Aditya Sakorkar

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