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Informist, Wednesday, Sep 4, 2024

By Vidhushi RajPurohit

MUMBAI - The interbank call money rate closed sharply below the Reserve Bank of India's standing deposit facility rate of 6.25% due to low demand for funds from banks owing to surplus liquidity, dealers said. Today, the one-day call money rate ended at 5.75%, unchanged from Tuesday. 

The liquidity surplus in the banking system was 2.48 trln rupees on Tuesday, against 2.23 trln rupees on Monday, RBI data showed. The surplus widened due to inflows from the government's month-end spending, dealers said.

"Around 1 trln rupees worth of inflows have been observed from the spending," a dealer at a private bank said. The inflows are anticipated to continue till Thursday, they said. Market participants anticipate the surplus to widen up a bit more, until outflows from tax payments start.

Typically, outflows for payments for excise and tax deducted at source occur on the 7th of a month, which would be the coming Saturday. However, a dealer at a state-owned bank said that the payments on these accounts were likely on Monday.

In line with the market participants' expectations, the RBI conducted a two-day, 1-trln-rupee variable rate reverse repo auction today. "The surplus liquidity had widened and the triparty repo rate was hovering below the RBI's SDF rate, the central bank had to step in with a VRRR auction," a dealer at another private bank said.

Banks parked 576.60 bln rupees at the auction. Some banks preferred not to lock up their funds at the auction, ahead of the reporting Friday. Others saw the auction as an opportunity to park funds at rates higher than in the secondary market, earning an arbitrage, dealers said.

"At the time of the auction, interbank borrowing rates were trading below the RBI's repo rate, so banks had an opportunity to make profit from the auction by lending money to the central bank at 6.49%," the dealer from a state-owned bank said. "The participation would have been more if it was an overnight auction." 

Market participants expect the central bank to announce an overnight variable rate reverse repo auction on Thursday as government spending is expected to led at minor inflows. "Banks might participate aggressively in an overnight VRRR auction as the interbank borrowing rates remain low due to ample surplus liquidity in the (banking) system," a dealer at another state-owned bank said.  

On Tuesday, banks' cash balance with the RBI stood at 9.81 trln rupees, up from 9.74 trln rupees on Monday. So far in the current fortnight ending Friday, banks have maintained an average amount of 9.93 trln rupees against the statutory required limit of 9.89 trln rupees.
 

The following are the other highlights:

* The weighted average call rate was 6.46%, against 6.47% on Tuesday.

* The weighted average rate for triparty repo was 6.20%, unchanged from Tuesday.

* The reversal of the standing deposit facility added 1.36 trln rupees to the banking system, while the reversal of the marginal standing facility drained 10.77 bln rupees. 

OUTLOOK

* On Thursday, 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

5.75%--Tuesday's close for one-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's spend

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50%, owing to demand for funds from some banks to meet their reserve requirements in the early trading hours, despite the widening of surplus liquidity in the banking system, dealers said. At 0930 IST, the one-day call money rate was at 6.55%, against 5.75% on Tuesday.

Market participants expect interbank borrowing rates to ease during the day as most banks have adequate funds because of the high surplus liquidity in the system. "The rates will ease as banks do not have any major outflow scheduled for today," a dealer with a state-owned bank said. "Until the outflow from the advance tax payment starts, surplus liquidity is expected to stay in a comfortable range."

On Tuesday, liquidity surplus in the banking system widened to 2.48 trln rupees from 2.23 trln rupees on Monday, data from the RBI showed. "Inflow from the government's month-end spending has boosted the surplus liquidity," a dealer with a private bank said. The surplus liquidity might increase further on account of minor inflows from government spending, dealers said.

Market participants expect the RBI to announce a short-tenure variable rate reverse repo auction provided the interbank borrowing rates are below the central bank's repo rate. At 0927 IST, the triparty repo rate was at 6.21%, below the RBI's standing deposit facility rate of 6.25%. "The central bank would want the triparty repo rate to inch higher and trade around the RBI's repo rate," a dealer at a private bank said. On Tuesday, banks parked an aggregate sum of 623.65 bln rupees at two variable rate reverse repo auctions. The reversal of the overnight auction will lead to inflow of 184.10 bln rupees into the banking system.

Amid the surplus liquidity, banks increased their cash balance with the central bank. On Tuesday, banks' cash balance with the RBI stood at 9.81 trln rupees against 9.74 trln rupees on Monday. The average daily cash reserve requirement for this fortnight is 9.89 trln rupees.

The following are the other highlights:

* The weighted average call rate was 6.55%, as against 6.47% on Tuesday.

* The weighted average rate for triparty repo was 6.23%, as against 6.20% on Tuesday.

* The reversal of the standing deposit facility added 1.36 trln rupees to the banking system, while the reversal of the marginal standing facility drained 10.77 bln rupees. 

* The call rate is seen within the range of 6.20-6.60% 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 Avishek Dutta

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