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Informist, Thursday, Aug 22, 2024

By Richard Fargose and Vidhushi RajPurohit

MUMBAI – The interbank call money rate today ended sharply below the Reserve Bank of India's standing deposit facility of 6.25% as demand for funds from banks subsided towards the end of trade, despite surplus liquidity in the banking system narrowing, dealers said. The one-day call rate ended at 5.75%, against 6.24% on Wednesday.

On Wednesday, the surplus liquidity in the banking system fell sharply to 798.18 bln rupees from 1.26 trln rupees on Tuesday, RBI data showed. The surplus liquidity on Wednesday is the lowest so far in the current fortnight ending Friday. The fall in surplus liquidity is due to the outflow on account of payment of goods and services tax, dealers said.

"The total outflow of around 1.60 trln rupees for goods and services tax payments on Tuesday and Wednesday has pulled down the surplus liquidity," a dealer at a private bank said.

Market participants expect the surplus liquidity to fall a bit further till the inflow through the government's month-end spending starts next week. Meanwhile, regular government spending has kept the liquidity surplus afloat amid the GST outflow. "Likely inflows through government spending seemed to have provided support to the liquidity, not letting the surplus wipe out in its entirety," a dealer with a private bank said.

Some amount of inflow resulting from RBI's intervention in the foreign exchange market on Tuesday could also have helped the interbank rate to ease during the day, dealers said. On Tuesday, the RBI likely bought $1.0 bln-$1.5 bln of the US currency as the rupee rose to an over two-week high against the dollar.

As the GST outflow ended, with no significant scheduled outflows in sight, dealers expect the interbank rates to remain moderate next week.

On Friday, three variable rate reverse repo tenders of 375.14 bln rupees are due for reversal. Post market hours today, the RBI announced a 1-trln-rupee, 14-day variable rate reverse repo auction between 1030 IST and 1100 IST on Friday.

The following are the other highlights:

* The weighted average call rate was 6.52%, as against 6.53% on Wednesday.

* The weighted average rate for triparty repo was 6.38%, as against 6.40% on Wednesday.

* The reversal of the standing deposit facility added 699.62 bln rupees to the banking system, while the reversal of the marginal standing facility drained 142.26 bln rupees. 

OUTLOOK 

* On Friday, the three-day call money rate may open near the RBI's repo rate of 6.50% due to strong demand for funds from banks amid a fall in liquidity surplus.

* During the day, the call rate is seen at 6.20-6.80%, dealers said.

CALL RATE

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

6.60%--Today's open for one-day loans

6.24%--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 on demand for funds post GST outflows 

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% today due to high demand for funds from banks in early trade amid a narrowed liquidity surplus in the banking system after outflows for goods and services tax payments, dealers said. At 0935 IST, the one-day call money rate was 6.60%, as against 6.24% at the close on Wednesday.

Market participants expect the interbank rates to trade around the RBI's repo rate during the day. "The outflow on account of GST payment in the last two days has tightened the liquidity conditions in the (banking) system," a dealer from a state-owned bank said. "The interbank borrowing rate will cool down during the day as liquidity is still in a comfortable range, considering no major outflows are lined up."  

On Wednesday, the liquidity surplus in the banking system narrowed to 798.18 bln rupees from 1.26 trln rupees on Tuesday, according to data from the RBI. On Tuesday and Wednesday, total outflows of around 1.60 trln rupees on account of payments of goods and services tax are estimated to have left the system, dealers said. 

Market participants see a narrow range for liquidity until inflows via the government's month-end spending enter the banking system next week. On Wednesday, banks borrowed 142.26 bln rupees via the RBI's marginal standing facility, against 12.02 bln rupees on Tuesday. Wednesday's borrowing via marginal standing facility was the highest since Aug 8.

On Friday, three variable rate reverse repo tenders of 375.14 bln rupees are due for reversal. Market participants do not see any major inflow or outflow for the day. 

The following are the other highlights:

* The weighted average call rate was 6.60%, against 6.53% on Wednesday.

* The weighted average rate for triparty repo was 6.42%, as against 6.40% on Wednesday.

* Reversal of the standing deposit facility added 699.62 bln rupees to the banking system, while reversal of the marginal standing facility drained 142.26 bln rupees. 

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

End

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

Edited by Ashish Shirke

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