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Informist, Friday, Aug 30, 2024

By Vidhushi RajPurohit and Richard Fargose

MUMBAI - The interbank call money rate today closed at the Reserve Bank of India's repo rate of 6.50% owing to firm demand for funds from banks despite surplus liquidity, dealers said. The call money rate for three-day loans ended at 6.50%, against 6.70% for one-day loans on Thursday. 

On Thursday, the surplus liquidity in the banking system increased slightly to 1.02 trln rupees, from 948.45 bln rupees on Wednesday, RBI data showed. Market participants are counting on the surplus liquidity to remain around the current level due to month-end government spending and lack of scheduled outflow for the current fortnight ending Sep 6. 

Despite surplus liquidity, banks parked just 40.00 bln rupees at the RBI's 1-trln-rupee seven-day variable rate reverse repo auction. "The subscription was on expected lines, banks were not looking to lock up their funds ahead of their weekend requirements," a dealer at a state-owned bank said. "Some banks are also tight on funds to meet month-end outflows related to their (loan) disbursement obligations."  

Moreover, the interbank borrowing rates were higher at the time of the auction, which led to subdued participation, dealers said. "The triparty repo rate was above the RBI's repo rate, so banks preferred to deploy their funds there," a dealer at a state-owned bank said.

During the early trading hours, the interbank borrowing rates were around the RBI's marginal standing deposit facility rate of 6.75%. "The inflow (from government month-end spending) was expected to hit the (banking) system by Aug 29, which did not come about," a dealer at a state-owned bank said. However, the rates started to moderate later in the day due to the likely inflows from government spending, dealers said. 

"Around 400 bln rupees seems to have entered the banking system, through the spending, in the latter half of the day," a dealer at a state-owned bank said. Additionally, two variable rate reverse auctions reversed which resulted in an inflow of 389.55 bln rupees.    

"Next week, inflows are also expected on account of the RBI's intervention in the foreign exchange market today," a dealer at a state-owned bank said. Today, the RBI bought dollars as there were foreign inflows due to the inclusion of seven Indian stocks on the MSCI index, dealers said. 

On Thursday, banks' cash balance with the RBI was at 9.87 trln rupees, slightly up from 9.78 trln rupees on Wednesday. For the current fortnight, the average daily cash reserve requirement is 9.89 trln rupees. 

The following are the other highlights:

* The weighted average call rate was 6.71%, as against 6.66% on Thursday.

* The weighted average rate for triparty repo was 6.60%, as against 6.63% on Thursday.

* The reversal of the standing deposit facility added 636.63 bln rupees to the banking system, while the reversal of the marginal standing facility drained 78.93 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

6.50%--Today's close for three-day loans

6.75%--Today's open for three-day loans

6.70%--Thursday's close for one-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Near MSF rate; demand for funds firm amid delayed inflows

MUMBAI – Interbank rates opened above the RBI's repo rate of 6.50% today amid firm demand for funds from banks during early trading hours, dealers said. The three-day call money rate was at 6.75% at 0925 IST, against 6.70% at close on Thursday for one-day loans.

Market participants expect the interbank borrowing rate to remain firm during the day, provided the government's month-end spending is not reflected in the banking system today. On Thursday, interbank borrowing rates were at the highest range for the current fortnight so far. The call money market rate peaked to 7.0% after staying around the RBI's repo rate for the most part of the day. "The banks had steady demand (on Thursday) because of the delaying of inflows from the government's month-end spending," a dealer at a state-owned bank said.

Banks had anticipated major inflows through salary and pension payments to be reflected in the banking system from Aug 29, but this did not materialise, dealers said. "Banks also had locked up their funds at the variable rate reverse repo auctions, leading to further tightening of surplus liquidity for some banks," a dealer at a state-owned bank said.

At the end of trading hours on Thursday, RBI announced a seven-day, 1-trln-rupee variable rate reverse repo auction between 1030 IST and 1100 IST today. Market participants expect bids around 100 bln rupees at the auction. "The triparty repo rate is trading high and adding to that banks need funds for the weekend too," dealer at a state-owned bank said. "The auction will likely see a mild response from the market." At 0930 IST the weighted average triparty rate was at 6.65%, as against 6.63% on Thursday. 

The liquidity surplus in the banking system increased slightly to 1.01 trln rupees on Thursday from 948.45 bln rupees on Wednesday, data from the RBI showed. Market participants expect the surplus liquidity to stay in the current range due to lack of scheduled outflows in the current fortnight and inflows from the government's month-end spending, which is anticipated to be reflected fully by next week.     

Banks maintained higher cash balances with the RBI amid surplus liquidity in the banking system. They maintained 9.87 trln rupees on Thursday, up from 9.78 trln rupees on Wednesday. The average daily cash reserve requirement for the current fortnight ending Sep 6 is 9.90 trln rupees, according to the data.

The following are the other highlights:

* The weighted average call rate was 6.75%, against 6.66% on Thursday.

* The weighted average rate for triparty repo was 6.65%, as against 6.63% on Thursday.

* Reversal of the standing deposit facility added 636.63 bln rupees to the banking system, while reversal of the marginal standing facility drained 78.93 bln rupees. 

* The call rate is seen in a range of 6.20-6.75% during the day. (Vidhushi RajPurohit and Richard Fargose)

End

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

Edited by Saji George Titus

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