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Informist, Friday, Aug 23, 2024

By Vidhushi RajPurohit

MUMBAI – The interbank call money rate closed below the Reserve Bank of India's Standing Deposit Facility rate of 6.25% today as demand for funds subsided towards the end of the day amid an increase in surplus liquidity, dealers said. The call money rate for three-day loans ended at 5.75%, unchanged from Thursday for one-day loans.

Surplus liquidity in the banking system increased to 1.07 trln on Thursday after slipping to 798.18 bln rupees on Wednesday post the outflow for goods and services tax payment. "The surplus liquidity increase (on Thursday) could be attributed to likely government spending," a dealer at a state-owned bank said. Some inflows could also have been due to the RBI's dollar purchases in the foreign exchange market on Tuesday, dealers said. 

Market participants expected the liquidity surplus to reduce after the GST outflow as no significant inflow was scheduled until next week when the government's month-end spending enters the banking system. However, except for the fall on Wednesday, in the current fortnight ending today, the surplus liquidity in the banking system has remained above the 1-trln-rupee mark. 

The RBI conducted a 14-day 1-trln-rupee variable rate reverse repo auction today. Despite the surplus liquidity, the auction received a tepid response from banks, as they parked only 203.77 bln rupees with the central bank.

Three variable rate reverse repo tenders were reversed today, resulting in an inflow of 375.14 bln rupees.

"Banks avoided locking their funds today at the (14-day variable rate reverse repo) auction as they needed to keep surplus funds to maintain the cash reserve with the RBI for the new reporting fortnight," a dealer at a state-owned bank said. Market participants were expecting the RBI to come up with a 3-day variable rate reverse repo auction after the lower bids in the 14-day auction. High interbank rates during the day ruled out the likelihood of another variable rate reverse repo auction today, dealers said. 

In early trade, the interbank rate hovered above the RBI's repo rate of 6.50%, despite the surplus liquidity. There was steady demand for funds as banks aimed to maintain high cash reserves with the central bank for the new reporting fortnight starting Saturday, dealers said. Market participants said 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.

On Thursday, banks reduced their cash balances with the RBI. Banks maintained 9.57 trln rupees on Thursday against the average daily cash reserve requirement of 9.83 trln rupees for the current fortnight ending today, according to RBI data. So far in the current fortnight, banks have maintained an average amount of 9.86 trln rupees with the central bank, which is above the required limit.        

The following are the highlights of the day:

* The weighted average call rate was 6.52%, unchanged from Thursday.

* The weighted average rate for triparty repo was 6.32%, against 6.38% on Thursday.

* Reversal of the standing deposit facility infused 844.13 bln rupees into the banking system, while reversal of the marginal standing facility drained 10.19 bln rupees.

OUTLOOK

* On Monday, the one-day call money rate may open around the repo rate of 6.50% due to demand for funds from banks during the early trading hours.

* During the day, the call rate is seen in a range of 6.20-6.60%, dealers said.

CALL RATE

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

6.60%--Today's open for three-day loans

5.75%--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 repo rate; liquidity surplus up on govt spending

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% today due to firm demand for funds from banks during the early trading hours, dealers said. At 0930 IST, the three-day call money rate was at 6.60%, against 5.75% for one-day loans on Thursday.

Market participants expect the interbank rate to ease during the day as liquidity remains comfortable.  

On Thursday, the liquidity surplus in the banking system was 1.07 trln rupees, up from 798.18 bln rupees on Wednesday, according to RBI data. The surplus widened on account of likely government spending and the RBI's intervention in the foreign exchange market this week.

The liquidity in the banking system had narrowed earlier this week after outflows on account of goods and services tax payment drained around 1.60 trln rupees, dealers said. 

Market participants expect the liquidity to continue being in a surplus range in the next week owing to the absence of any significant outflows. "In the next week, government month-end spending is scheduled to enter the system, so in all likelihood the surplus liquidity is expected to remain comfortable," a dealer with a private bank said. 

Today, the central bank will hold a 14-day variable rate repo auction for a notified amount of 1 trln rupees. The auction will be held from 1030 IST and end at 1100 IST. Market participants expect the banks to park around 300 bln rupees at the auction. "The result of today's auction will also give a cue if the RBI will conduct another VRRR auction later in the day," a dealer with a private bank said. "If the amount of bids are underwhelming, then the RBI might announce a 3-day VRRR auction."

Today, three variable rate reverse repo tenders of 375.14 bln rupees are due for reversal. 

Market participants said the central bank is proactively managing liquidity in the banking system, and they expect regular shorter tenure variable rate repo auctions in the next week also.
 

The following are the other highlights:

* The weighted average call rate was 6.60%, against 6.52% on Thursday.

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

* Reversal of the standing deposit facility added 844.13 bln rupees to the banking system, while reversal of the marginal standing facility drained 10.19 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

Edited by Saji George Titus

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