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Informist, Thursday, Aug 8, 2024

By Richard Fargose

MUMBAI – The interbank call money market ended at the Reserve Bank of India's marginal standing facility rate of 6.75% due to strong demand from banks amid a sharp fall in surplus liquidity in the banking system, dealers said. The one-day call money rate ended at 6.75% against 6.25% on Wednesday.

The interbank call money rate remained elevated today as the liquidity surplus narrowed sharply on Wednesday on account of excise and tax-deducted-at-source payments and outflows due to the RBI's aggressive intervention in the forex market earlier this week, dealers said.

The central bank is seen intervening heavily in the offshore non-deliverable forwards and domestic spot market this week to prevent the domestic currency from falling below the psychologically-crucial level of 84 per dollar, dealers said. 

The liquidity surplus in the banking system was at 1.98 trln rupees on Wednesday against 2.79 trln rupees on Tuesday, data from the RBI showed. Last week, inflows of around 1.60 trln rupees on account of the government's month-end spending boosted the liquidity in the banking system.

Moreover, demand for funds was also high as banks have parked huge funds at the RBI's variable rate reverse repo operations.

Owing to strong demand for funds, the weighted average call rate rose to 6.65% today from 6.48% on Wednesday. The weighted average triparty repo rate also surged to 6.65% from 6.36% in the previous session.

"Usually, we are lenders in the market, but today we were on the borrowing side," said a dealer with state-owned bank. "Probably, banks have parked excess funds at VRRR."

A total of 1.86 trln rupees has been stuck in four variable rate reverse repo tenders, which will be reversed on Friday. The RBI will hold a 1-trln-rupee, 14-day variable rate reverse repo auction on Friday.

On Tuesday, banks borrowed 167.50 bln rupees through the RBI's marginal standing facility window, the highest since Jun 28.

Banks maintained lower-than-required cash balances with the RBI. They maintained 9.47 trln rupees on Wednesday, lower than the average daily cash reserve requirement of 9.81 trln rupees for the current fortnight ending Friday, according to the data. Banks maintained higher cash balances with the RBI last week, and so far they have maintained an average of 9.87 trln rupees for the current fortnight, which means there will be comparatively lower demand for funds to meet reserve requirements.

The following are the other highlights:

* The weighted average call rate was 6.65%, against 6.48% on Wednesday.

* The weighted average rate for triparty repo was 6.65%, against 6.36% on Wednesday.

* Reversal of the standing deposit facility added 408.42 bln rupees to the banking system, while reversal of the marginal standing facility drained 167.50 bln rupees. 

OUTLOOK

* On Friday, the three-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 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

6.75%--Today's close for one-day loans

6.75%--Today's open for one-day loans

6.25%--Wednesday's close for one-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above RBI repo rate as liquidity surplus narrows sharply
 

MUMBAI - The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% today due to strong demand for funds from some banks in early trade as liquidity surplus has narrowed sharply, dealers said. The one-day call money rate was at 6.70% at 0930 IST, against 6.25% at the close on Wednesday.

The interbank call money rate is likely to remain higher today as the liquidity surplus narrowed by around 800 bln rupees on Wednesday on account of excise and tax-deducted-at-source payments and outflows due to the RBI's aggressive intervention in forex market earlier this week, dealers said.

The central bank intervened heavily in the offshore non-deliverable forwards and domestic spot market earlier this week to keep the domestic currency from falling below the psychologically crucial level of 84 per dollar, dealers said. 

"Around 50,000-60,000 crores (500-600 bln rupees) due to excise and TDS, and 35,000-40,000 crores (350-400 bln rupees) due FX interventions has moved out of the system," said a dealer with a private bank.

The liquidity surplus in the banking system was at 1.98 trln rupees on Wednesday against 2.79 trln rupees on Tuesday, data from the RBI showed. Last week, inflows of around 1.60 trln rupees on account of the government's month-end spending boosted the liquidity in the banking system.

Dealers also said as banks have parked huge funds at the RBI's variable rate reverse repo operations, the overnight borrowing rates are expected to remain elevated today. A total of 1.86 trln rupees has been stuck in four variable rate reverse repo tenders, which will be reversed on Friday.

Banks maintained lower-than-required cash balances with the RBI. They maintained 9.47 trln rupees on Wednesday, lower than the average daily cash reserve requirement of 9.81 trln rupees for the current fortnight ending Friday, according to the data. Banks maintained higher cash balances with the RBI last week, and so far they have maintained an average of 9.86 trln rupees for the current fortnight, which means there will be lower demand for funds to meet reserve requirements.

The following are the other highlights:

* The weighted average call rate was 6.75%, against 6.48% on Wednesday.

* The weighted average rate for triparty repo was 6.60%, as against 6.36% on Wednesday.

* Reversal of the standing deposit facility added 408.42 bln rupees to the banking system, while reversal of the marginal standing facility drained 167.50 bln rupees. 

* The call rate is seen in a range of 6.20-6.75% during the day. (Richard Fargose)

End

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

Edited by Vidhi Verma

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