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Informist, Friday, Aug 9, 2024

By Richard Fargose

MUMBAI – The interbank call money market ended sharply below the Reserve Bank of India's standing deposit facility rate of 6.25% as demand from banks eased towards the end and some banks deployed excess funds at lower rates, dealers said. The three-day call money rate ended at 5.75% against 6.75% on Thursday for one-day loans.

The weighted average call rate eased to 6.53% against 6.65% on Thursday due to improved funding conditions of banks following the maturity of four variable rate reverse repo tenders of a total of 1.86 trln rupees today, dealers said.

On Thursday, due to a surge in overnight borrowing rates, banks borrowed 437.91 bln rupees through the RBI's marginal standing facility at 6.75%, which was highest since Jun 28.

The RBI today conducted a 1-trln-rupee, 14-day variable rate reverse repo auction today, against the maturity reverse repo tenders of a total of 1.86 trln rupees.

However, most banks preferred not to park funds in the 14-day window as funds parked in this tender will not be available to meet the goods and service tax outflows due during the next fortnight. Banks parked only 149.54 bln rupees at today's 14-day variable rate reverse repo tender.

As a result, the RBI announced a shorter tenure three-day reverse repo auction for 750 bln rupees, and banks parked 452.36 bln rupees at this auction.

The liquidity surplus narrowed this week on account of excise and tax-deducted-at-source payments and outflows due to the RBI's aggressive intervention in the forex market, dealers said.

The liquidity surplus in the banking system was at 1.66 trln rupees on Thursday against 1.98 trln rupees on Wednesday, data from the RBI showed.

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 9.54 trln rupees on Thursday compared with 9.81 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 6.53%, against 6.65% on Thursday.

* The weighted average rate for triparty repo was 6.32%, against 6.65% on Thursday.

* Reversal of the standing deposit facility added 370.87 bln rupees to the banking system, while reversal of the marginal standing facility drained 437.91 bln rupees. 

OUTLOOK

* On Monday, 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 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 three-day loans

6.65%--Today's open for three-day loans

6.75%--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 on demand from banks in early trade

MUMBAI - The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% today due to demand for funds from some banks in early trade as the liquidity surplus has narrowed further, dealers said. The three-day call money rate was at 6.55% at 0930 IST, against 6.75% at the close on Thursday for one-day loans.

However, the interbank call money rate is likely to ease intraday as the RBI is conducting a 1-trln-rupee, 14-day variable rate reverse repo auction today, against the maturity of four variable rate reverse repo tenders of a total of 1.86 trln rupees, dealers said. "Rates will be lower than yesterday as the amount returning to the system is higher than the (variable rate reverse repo) auction size," said a dealer with a state-owned bank.

On Thursday, demand for funds was high as banks parked huge funds at the RBI's variable rate reverse repo operations, which resulted in banks borrowing 437.91 bln rupees via RBI's marginal standing facility at 6.75% on Thursday, highest since Jun 28. 

Dealers further said that banks will avoid parking large amounts at the 14-day variable rate reverse repo auction as payments for goods and service tax are scheduled before the reversal of the auction. 

The liquidity surplus narrowed this week on account of excise and tax-deducted-at-source payments and outflows due to the RBI's aggressive intervention in the forex market, dealers said.

The liquidity surplus in the banking system was at 1.66 trln rupees on Thursday against 1.98 trln rupees on Wednesday, data from the RBI showed. 

The following are the other highlights:

* The weighted average call rate was 6.65%, unchanged from Thursday.

* The weighted average rate for triparty repo was 6.47%, as against 6.65% on Thursday.

* Reversal of the standing deposit facility added 370.87 bln rupees to the banking system, while reversal of the marginal standing facility drained 437.91 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 Akul Nishant Akhoury

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