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Informist, Wednesday, Aug 14, 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 from banks eased towards the end amid comfortable liquidity in the banking system, dealers said. The two-day call money rate ended at 5.75%, unchanged from Tuesday for one-day loans.

Indian financial markets will be closed on Thursday on account of Independence Day. 

The RBI today conducted two two-day reverse repo auctions of 500 bln rupees each to drain the excess liquidity from the banking system. At the first two-day variable rate reverse repo auction, banks parked 228.82 bln rupees with the RBI at a cut-off rate of 6.49%. 

The RBI today announced a second two-day reverse repo to mop-up the excess liquidity as the triparty repo (TREPs) rate was hovering around the 6.30-6.35% level, market participants said. "TREPs rates moved lower after the first VRRR auction, and also may be the RBI was expecting higher amounts at the auction," said a dealer with a state-owned bank.

Dealers said the RBI announced the second auction to drain excess funds and align the borrowing rates closer to the repo rate of 6.50%. However, the second two-day reverse repo auction received a tepid response as most banks had already parked their excess funds at the first 2-day variable rate reverse repo auction, dealers said. Banks parked only 75.75 bln rupees at the second variable rate reverse repo auction. 

The weighted average triparty repo rate was at 6.35% today, as against 6.34% on Tuesday. The liquidity surplus in the banking system widened to 1.26 trln rupees on Tuesday from 1.13 trln rupees on Monday, data from the RBI showed. Market participants see liquidity narrowing further in the current fortnight due to goods and services tax outflows next week. 

So far this week, the central bank has drained a total of 901.22 bln rupees through four variable rate reverse repo auctions. All the four tenders will reverse on Friday. 

Banks continued to maintain higher cash balances with the central bank due to the start of the new reporting fortnight from Saturday. 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.

Banks maintained 10.06 trln rupees on Tuesday, as against the average daily cash reserve requirement of 9.83 trln rupees for the current fortnight ending on Aug 23.

The following are the other highlights:

* The weighted average call rate was 6.48%, unachanged from Tuesday.

* The weighted average rate for triparty repo was 6.35%, against 6.34% on Tuesday.

* Reversal of the standing deposit facility added 594.51 bln rupees to the banking system, while reversal of the marginal standing facility drained 21.07 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 comfortable 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 two-day loans

6.55%--Today's open for two-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo on demand from some bks; liquidity comfortable

MUMBAI - The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% today due to demand from some banks in early trade to meet reserve requirements, dealers said. The two-day call money rate was at 6.55% at 0940 IST, against 5.75% at the close on Tuesday for one-day loans.

Indian financial markets will be closed on Thursday on account of Independence Day. 

However, the interbank call money rate is expected to ease later in the day as liquidity remains comfortable, dealers said. The liquidity surplus in the banking system widened slightly to 1.26 trln rupees on Tuesday, against 1.13 trln rupees on Monday, on account of likely government spending.

"There were some inflows yesterday. That is also a reason why the RBI has conducted a second VRRR (variable rate reverse repo)," said a dealer with a state-owned bank.

On Tuesday, the RBI conducted a three-day reverse repo auction and an overnight variable rate reverse repo also.

Dealers said banks would prefer to maintain higher cash reserves today due to the market holiday on Thursday.

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. They maintained 9.98 trln rupees on Monday, as against 9.83 trln rupees--the average daily cash reserve requirement for the current fortnight ending on Aug 23.

Market participants see liquidity moving closer to a neutral level next week due to scheduled GST outflows.

Market participants said that as the triparty repo is trading below the RBI's repo rate, the central bank may announce a two-day variable rate reverse repo auction for notified amount of around 500 bln rupees.

At 0940 IST, triparty repo was trading at a weighted average rate of 6.37%.

The following are the other highlights:

* The weighted average call rate was 6.55% as against 6.48% on Tuesday.

* The weighted average rate for triparty repo was 6.37%, as against 6.35% on Tuesday.

* Reversal of the standing deposit facility added 594.51 bln rupees to the banking system, while reversal of the marginal standing facility drained 21.07 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 Saji George Titus

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