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Informist, Friday, Aug 16, 2024

By Richard Fargose

MUMBAI – The interbank call money market rate ended below the Reserve Bank of India's standing deposit facility rate of 6.25% as demand from banks eased towards the end. However, the weighted average call rate and triparty rate moved higher as banks parked higher-than-expected funds at the three-day variable rate reverse repo auction, dealers said. 

The three-day call money rate ended at 6.20% against 5.75% on Wednesday for two-day loans, and the weighted average call rate stood at 6.52% today as against 6.48% Wednesday. The weighted average rate for triparty repo also rose 2 basis point from the previous session to 6.37% today.

Indian financial markets were closed on Thursday on account of Independence Day. 

The RBI today conducted a three-day reverse repo auction of 1 trln rupee to drain the excess liquidity from the banking system. Which witnessed a strong participation, with banks parking 932.37 bln rupees at the variable rate reverse repo. The reversal of four variable rate reverse repo auctions, which were conducted earlier this week, added 901.22 bln rupees to the banking system today.

As per the Informist poll, participants expected total bids between 400 bln rupees and 650 bln rupees at the auction, with a median estimate of 525 bln rupees.

The interbank borrowing inched up after banks parked a higher-than-expected amount at a reverse repo auction. However, rates eased later in the session as mutual funds had excess funds which they deployed in the triparty repo at attractive rates, dealers said.

"Banks are expecting liquidity to remain comfortable on Saturday, and they are confident that they will be able to manage any funding needs if any," said a dealer with private bank. "PSU must be aware of some good liquidity position for tomorrow, that's why the aggressive bidding (at variable rate reverse repo)."

The liquidity surplus in the banking system widened to 1.37 trln rupees on Wednesday from 1.26 trln rupees on Tuesday, data from the RBI showed. Market participants said the liquidity surplus widened on account of likely government spending. Market participants see liquidity narrowing in next week due to goods and services tax outflows.

As liquidity remains comfortable, banks would prefer to maintain higher cash reserves today, dealers said.

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 10.05 trln rupees on Wednesday, as against 9.83 trln rupees, the average daily cash reserve requirement for the current fortnight ending on Aug 23.

The following are the other highlights:

* The weighted average call rate was 6.52% as against 6.48% Wednesday.

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

* Reversal of the standing deposit facility added 470.59 bln rupees to the banking system, while reversal of the marginal standing facility drained 12.04 bln rupees

OUTLOOK

* On Saturday, the two-day call money rate may open below the RBI's repo rate of 6.50% because of low demand for funds from banks amid the liquidity surplus.

* As is usually the case on Saturdays, volume in the market is expected to be low.

* During the day, the call rate is seen in a range of 6.00-6.60%, dealers said.

CALL RATE

6.20%--Today's close for three-day loans

6.55%--Today's open for three-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above RBI repo rate; liquidity surplus widens slightly

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 three-day call money rate was at 6.55% at 0940 IST, against 5.75% at the close on Wednesday for two-day loans.

Indian financial markets were closed on Thursday on account of Independence Day. 

However, the interbank call money rate is seen easing later in the day as the liquidity surplus in the banking system widened slightly to 1.37 trln rupees on Wednesday, against 1.26 trln rupees on Tuesday. Market participants said the liquidity surplus widened on account of likely government spending.

Dealers expect the RBI to announce a three-day reverse repo auction for 500 bln-1 trln rupees to drain the excess surplus liquidity. The reversal of four variable rate reverse repo auctions, which were conducted earlier this week, added 901.22 bln rupees to the banking system today.

Market participants see liquidity moving closer to a neutral level next week due to scheduled goods and services tax outflows.

"No major outflows today, and GST outflows will start next week," said a dealer with a state-owned bank. "Hence, we expect a three-day reverse repo auction today."

As liquidity remains comfortable, banks would prefer to maintain higher cash reserves today, dealers said.

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 10.05 trln rupees on Wednesday, as against 9.83 trln rupees, the average daily cash reserve requirement for the current fortnight ending on Aug 23.

The following are the other highlights:

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

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

* Reversal of the standing deposit facility added 470.59 bln rupees to the banking system, while reversal of the marginal standing facility drained 12.04 bln rupees. 

* The call rate is seen in a range of 6.00-6.60% during the day. (Richard Fargose)

End

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

Edited by Deepshikha Bhardwaj

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