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Informist, Tuesday, Aug 27, 2024

By Vidhushi RajPurohit

MUMBAI – The interbank call money rate today closed below the Reserve Bank of India's standing deposit facility of 6.25% due to ease in demand for funds from banks towards the end of trade, amid a comfortable surplus liquidity in the banking system, dealers said. The one-day call rate ended at 5.75%, unchanged from Monday.

Market participants' expectations of a variable rate reverse repo auction today, faded when the interbank borrowing rates stayed around the RBI's repo rate. "The surplus liquidity was also lower compared to the previous fortnight, preventing the RBI from conducting a VRRR (variable rate reverse repo) auction today," a dealer at a state-owned bank said. The weighted average triparty repo rate was 6.40%, up 8 basis points from 6.32% on Monday. 

On Monday, the surplus liquidity in the banking system fell to 822.35 bln rupees from 847.76 bln rupees on Sunday, the RBI data showed. Last week, for most days, the surplus liquidity was above the 1.00 trln rupees mark. "Outflows due to payment of goods and services tax in the last week must have impacted the surplus liquidity, pulling it down to the current level," a dealer at a state-owned bank said. "On Monday, the outflow due to payment for 230-bln-rupee gilts auctioned on Friday and the 290.80-bln-rupee parked at the four-day variable rate reverse repo auction also led to the slight reduction of surplus liquidity."

On Monday, banks parked 477.91 bln rupees at the RBI's Standing Deposit Facility, the lowest since Aug 15.

According to a dealer at a state-owned bank, the government's month-end spending is expected to bring in an inflow of 400–500 bln rupees in the coming days. The anticipated inflow and the lack of any sizeable outflow will help maintain the surplus liquidity, dealers said.

On Monday, banks' cash balance with the RBI was 9.80 trln rupees against the daily average requirement of 9.89 trln for the current fortnight ending Sep 6. "Banks are keeping funds with them and are trading in the interbank market, while maintaining 90% of the required amount, which is the threshold limit for cash reserve to be kept with the RBI," a dealer at a state-owned bank said.  

The following are the other highlights:

* The weighted average call rate was 6.51%, as against 6.52% on Monday.

* The weighted average rate for triparty repo was 6.40%, as against 6.32% on Monday.

* The reversal of the standing deposit facility added 477.91 bln rupees to the banking system, while the reversal of the marginal standing facility drained 15.76 bln rupees. 

OUTLOOK 

* On Wednesday, the one-day call money rate may open near the RBI's repo rate of 6.50% due to strong demand for funds from banks amid early trading hours.

* 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

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo rate; govt's month-end spend to boost liquidity

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 early trading hours, dealers said. At 0930 IST, the one-day call money rate was at 6.60%, against 5.75% on Monday.

Market participants are of the view that interbank rates will moderate later in the day, as liquidity remains in a comfortable range. 

On Monday, the call rate was observed at around the RBI's repo rate as demand for funds from banks was steady since they had to maintain reserve requirements, dealers said. "The surplus liquidity, though it narrowed on Sunday, was in a comfortable position for the rates to ease towards the end," a dealer at a state-owned bank said. 

On Monday, the liquidity surplus in the banking system was 822.35 bln rupees, slightly lower than 847.76 bln rupees on Sunday, according to RBI data. The surplus narrowed on account of payments for gilts auctioned, dealers said. On Monday, outflows of 230 bln rupees took place on account of the payment for gilts auctioned on Friday.

Liquidity in the banking system was expected to reduce sharply last week after outflows on account of goods and services tax payment drained around 1.60 trln rupees, dealers said. "Likely, regular government spending kept it steady," a dealer with a state-owned bank said.  

Owing to a fall in liquidity surplus, banks maintained lower cash balances with the central bank on Monday – they maintained 9.80 trln rupees, compared to 9.86 trln rupees on Sunday. For the current fortnight, the average daily cash reserve requirement is 9.89 trln rupees, according to RBI data. "Banks are still maintaining an adequate cash balance with the RBI, taking into account that they are allowed to maintain 90% of the statutory required amount," a dealer with a state-owned bank said.

Market participants expect the central bank to announce a short-tenure variable rate reverse repo auction today. On Monday, the central bank held a 500-bln-rupee four-day variable rate reverse repo auction. Banks parked 290.80 bln rupees at the auction at a cut-off rate of 6.49%.

Liquidity is expected to continue being in surplus this week owing to the absence of any significant outflows. "Later this week, government month-end spending is scheduled to enter the (banking) system, hence the surplus liquidity is expected to remain comfortable," a dealer with a state-owned bank said. 
 

The following are the other highlights:

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

* The weighted average rate for triparty repo was 6.36%, as against 6.32% on Monday.

* Reversal of the standing deposit facility added 477.91 bln rupees to the banking system, while reversal of the marginal standing facility drained 15.76 bln rupees. 

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

End

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

Filed by Akul Nishant Akhoury

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