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Informist, Monday, Sep 2, 2024

By Vidhushi RajPurohit and Richard Fargose

MUMBAI - The interbank call money rate today closed sharply below the Reserve Bank of India's standing deposit facility rate of 6.25% owing to a drop in demand for funds from banks amid surplus liquidity, dealers said. Today, the one-day call money rate ended at 5.75%, against 6.00% for two-day loans on Saturday. 

After initial delay, the government's month-end spending finally entered the banking system on Friday. "Banks were expecting the inflows to start from Aug 29, the delay made the liquidity conditions a bit tight during the last week," a dealer at a state-owned bank said. The inflows from the month-end spending are likely to continue till Aug 4, dealers said. Meanwhile, outflows worth 300 bln rupees left the banking system today on account of payments for gilts auctioned on Friday. 

On Sunday, the surplus liquidity in the banking system widened to 1.65 trln rupees from 1.02 trln rupees on Thursday, RBI data showed. The amount was the highest since Aug 8, when it stood at 1.66 trln rupees. Despite surplus liquidity, banks parked only 389.65 bln rupees at the RBI's 1.50-trln-rupee four-day variable rate reverse repo auction. "The notified amount was much more than what banks were comfortable locking," a dealer at a state-owned bank said. For this fortnight ending Sep 6, the surplus liquidity is expected to stay around the current range, dealers said.         

Amid surplus liquidity, banks increased their cash balances with the RBI. On Sunday, banks' cash balance with the RBI stood at 10.12 trln rupees against the average daily cash reserve requirement, which is 9.89 trln rupees. Until Friday, this fortnight, banks maintained lower than the required amount, while keeping up with the 90% threshold. However, after the inflow from the government's month-end spending boosted surplus liquidity, banks have started maintaining a higher amount with the central bank, dealers said.

The following are the other highlights:

* The weighted average call rate was 6.49%, against 6.13% on Saturday.

* The weighted average rate for triparty repo was 6.26%, as against 6.17% on Saturday.

* The reversal of the standing deposit facility added 1.56 trln rupees to the banking system, while the reversal of the marginal standing facility drained 22.2 bln rupees. 

OUTLOOK

* On Tuesday, the one-day call money rate may open around the RBI's repo rate of 6.50% because of demand for funds from banks in early trading hours.

* During the day, the call rate is seen in a range of 6.00-6.60%, dealers said.

CALL RATE

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

6.55%--Today's open for one-day loans

6.00%--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; liquidity surplus widens on govt spend 

MUMBAI – The interbank call money rate opened above the Reserve Bank of India's repo rate of 6.50% today due to firm demand for funds from banks, dealers said. The one-day call money rate was 6.55% at 0925 IST, against 6.00% at close on Saturday for two-day loans.

Liquidity surplus in the banking system increased slightly to 1.22 trln rupees on Friday from 1.02 trln rupees on Thursday, RBI data showed. "The surplus increase is due to the start of the inflows from the government's month-end spending," a dealer at a state-owned bank said. "The spending is expected to continue bringing inflow over the next few days as well."

Market participants expect the surplus liquidity to improve slightly and remain in a comfortable range for the current fortnight. "Banks don't have any scheduled outflow for now and the inflow from the salary and pension payments is going to provide banks with adequate funds for their operations," a dealer at a state-owned bank said. "The interbank borrowing rate will likely ease during the day owing to comfortable liquidity and continued inflow from the government's spending," a dealer with a private bank said.

Market participants expect the RBI to announce a variable rate reverse repo auction today. "The surplus liquidity has improved and the interbank borrowing rates are likely to moderate, which might lead the central bank to conduct a VRRR auction," a dealer at a state-owned bank said. "Banks will also participate more than what was observed at the last auction." On Friday, at the seven-day, 1-trln-rupee variable rate reverse repo auction, banks parked a mere 40 bln rupees.

Banks increased their cash balances with the RBI amid surplus liquidity in the banking system. They maintained 10.27 trln rupees on Friday, up from 9.87 trln rupees on Thursday. The average daily cash reserve requirement for the current fortnight ending Sep 6 is 9.89 trln rupees, according to the data.

The following are the other highlights:

* The weighted average call rate was 6.55%, against 6.13% on Saturday.

* The weighted average rate for triparty repo was 6.34%, as against 6.17% on Saturday.

* Reversal of the standing deposit facility added 469.76 bln rupees to the banking system, while reversal of the marginal standing facility drained 14.30 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 Avishek Dutta

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