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Informist, Monday, Aug 19, 2024

By Vidhushi RajPurohit and Richard Fargose

MUMBAI – The interbank call money market rate ended today below the Reserve Bank of India's standing deposit facility rate of 6.25% owing to the widening of the liquidity surplus in the banking system, dealers said.

The one-day call money rate ended at 5.85% against 5.75% on Saturday for two-day loans. 

Market participants said likely inflows on account of government spending and coupon payments in the last week amid the absence of any significant outflows has led to the widening of the liquidity surplus in the banking system. 

The liquidity surplus in the banking system was at 1.64 trln rupees on Sunday against 1.55 trln rupees on Friday, data from the RBI showed. Market participants expect the banking system liquidity to turn neutral in the current week due to outflows from the payment of goods and services tax scheduled Tuesday and Wednesday. "The outflow on account of GST payment will be around 1.50 to 1.60 trln rupees," a dealer from a state-owned bank said.

With surplus liquidity in the banking system and the triparty rate which has remained below the RBI's repo rate led the central bank today to conduct a 750-bln-rupee, four-day variable rate reverse repo auction. Market participants expected an overnight variable rate reverse repo auction as the GST outflow is to start from Tuesday.

The auction saw a tepid response from the banks as they parked 216.85 bln rupees with the RBI. "The reversal of the variable rate reverse repo is after the GST outflow date, hence banks refrained from locking up their funds for four days in the auction," a dealer with a private bank said. 

Many banks were expecting the RBI to conduct an overnight variable rate reverse repo auction today after observing the meagre bids from banks in the four-day auction. Nevertheless, the central bank did not conduct a second variable rate reverse repo auction today.

"During the trading hours today, the treps rate reached a high of 6.47% after the auction, which might have been the reason for the RBI to not conduct an overnight variable rate repo auction," said a dealer. The triparty rate opened at 6.35% and during the day it was at 6.00-6.47% and weighted average rate for triparty repo was 6.33%.

Today, there were outflows worth 340 bln rupees as payment for gilts, which were auctioned on Friday, dealers said.  

According to RBI data, on Sunday, banks' cash balance with RBI was reduced to 9.80 trln rupees from 9.91 trln rupees on Friday. The average daily requirement for the current fortnight ending on Aug 23 is 9.83 trln.

The following are the other highlights:

* The weighted average call rate was 6.49% against 6.17% on Saturday.

* The weighted average rate for triparty repo was 6.33% as compared to 6.25% on Saturday.

* Reversal of the standing deposit facility infused 785.07 bln rupees into the banking system, while reversal of the marginal standing facility drained 95.04 bln rupees.

OUTLOOK

* On Tuesday, the one-day call money rate may open near the RBI's repo rate of 6.50% because of the 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 6.20-6.75%, dealers said.

CALL RATE

5.85%--Today's close for one-day loans

6.55%--Today's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo rate on bks' demand; liquidity surplus widens 

MUMBAI – The interbank call money market 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 despite comfortable liquidity in the banking system, dealers said. The one-day call money rate was at 6.55% at 0930 IST, against 5.75%% at the close on Saturday for two-day loans.

The liquidity surplus in the banking system widened further to 1.55 trln rupees on Friday from 1.40 trln rupees on Thursday, data from the RBI showed. Dealers said likely inflows on account of government spending last week widened the liquidity surplus in the banking system. 

On Friday, excess liquidity and lower triparty repo rate prompted the RBI to conduct a 1-trln-rupee three-day variable rate reverse repo auction. The auction saw aggressive participation from banks as they parked 932.37 bln rupees with the RBI. 

Market participants expect the RBI to conduct a variable rate reverse repo auction today, as the liquidity surplus has increased and the triparty repo rate continues to trade below the RBI's repo rate. As goods and services tax outflows are scheduled on Tuesday, it will be appropriate for the RBI to hold an overnight reverse repo auction today, dealers said.

At 1000 IST, the triparty rate was at 6.40%. "Since the TREPs rate is hovering around 6.40%, there exist fewer chances of arbitrage in case of a variable rate reverse repo auction, hence we may see lower participation in VRRR, if any," a dealer from a private bank said.

On Friday, banks' cash balances with the central bank stood at 9.91 trln rupees, against the average daily requirement limit of 9.83 trln rupees for the current fortnight this Friday. Banks usually tend to maintain a higher amount of funds with the RBI at the beginning of a reporting week while they have a comfortable liquidity position, so that they can be at ease if the liquidity surplus narrows down later. 

The following are the other highlights:

* The weighted average call rate was 6.55%, against 6.17% on Saturday.

* The weighted average rate for triparty repo was 6.40%, as against 6.25% on Saturday.

* Reversal of the standing deposit facility added 674.31 bln rupees to the banking system, while reversal of the marginal standing facility drained 6.96 bln rupees. 

* The call rate is seen in a range of 6.20-6.70% during the day. (Richard Fargose and Vidhushi RajPurohit)

End

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

Filed by Aditya Sakorkar

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