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Informist, Tuesday, Aug 6, 2024

By Kabir Sharma

MUMBAI – The interbank call money market ended sharply 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 a 25-month high, dealers said. The one-day call money rate ended at 5.75%, unchanged from Monday.

The liquidity surplus in the banking system widened to 2.86 trln rupees on Monday, the highest since Jul 6, 2022, from 2.78 trln rupees on Sunday, data from the RBI showed. Last week, inflows on account of the government's month-end spending boosted the liquidity in the banking system, dealers said. Inflows of around 1.60 trln rupees from the spending have hit the banking system, they added.

"There is capex (capital expenditure) coming from the government in small tranches, which was delayed due to the elections. This is expected to continue for some time and will keep liquidity in surplus," a dealer at a private bank said. 

The RBI today conducted two variable rate reverse repo operations for a total amount of 1.25 trln rupees. At the first auction, which was a three-day operation with a notified amount of 750 bln rupees, banks parked 238.03 bln rupees at a cutoff rate of 6.49%. At the second overnight reverse repo auction, banks parked 199.54 bln rupees from the total notified amount of 500 bln rupees at the same cutoff rate of 6.49%. There are three other variable rate reverse repo tenders worth 1.62 trln rupees outstanding, which will be reversed on Friday.

Dealers also said state-owned banks enjoyed the lion's share of liquidity as they held buffers to account for inter-operational issues and some unexpected disbursements popping up later in the day. Market participants also expect outflows of around 500-600 bln rupees on account of excise and tax-deducted-at-source payments 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 6.50%, dealers said.

Banks maintained lower-than-required cash balances with the RBI. They maintained 9.52 trln rupees on Monday, lower than the average daily cash reserve requirement of 9.81 trln rupees for the current fortnight ending Friday, according to the data. Banks had maintained higher cash balances with the RBI last week and were on track to comfortably meet regulatory requirements, dealers said.

The following are the other highlights:

* The weighted average call rate was 6.41%, against 6.44% on Monday.

* The weighted average rate for triparty repo was 6.24%, against 6.18% on Monday.

* Reversal of the standing deposit facility added 1.38 trln rupees to the banking system, while reversal of the marginal standing facility drained 15.17 bln rupees. 

OUTLOOK

* On Wednesday, 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 6.00-6.60%, dealers said.

CALL RATE

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

6.45%--Today's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate; liquidity surplus widens, at 25-mo high

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 6.50% today 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 6.35% at 1000 IST, against 5.75% for one-day loans on Monday.

The liquidity surplus in the banking system widened to 2.86 trln rupees on Monday, the highest since Jul 6, 2022, from 2.78 trln rupees on Sunday, data from the RBI showed. Last week, inflows on account of the government's month-end spending boosted the liquidity in the banking system, dealers said. Inflows of around 1.60 trln rupees from the spending have hit the banking system, they added.

Banks maintained lower-than-required cash balances with the RBI. They maintained 9.52 trln rupees on Monday, lower than the average daily cash reserve requirement of 9.81 trln rupees for the current fortnight ending Friday, according to the data. Banks had maintained higher cash balances with the RBI last week and were on track to comfortably meet regulatory requirements, dealers said.

Most market participants expect the RBI to announce an overnight variable rate reverse repo today of around 750 bln rupees to drain the excess liquidity in the banking system.

The RBI on Monday 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. 

No major inflows or outflows are expected today, dealers said. Outflows of around 500-600 bln rupees may be transacted by Wednesday on account of excise and tax deducted at source payments, they said.

The following are the other highlights:

* The weighted average call rate was 6.50%, against 6.44% on Monday.

* The weighted average rate for triparty repo was 6.25%, as against 6.18% on Monday.

* Reversal of the standing deposit facility added 1.38 trln rupees to the banking system, while reversal of the marginal standing facility drained 15.17 bln rupees. 

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

End

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

Edited by Rajeev Pai

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