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Informist, Thursday, Sep 5, 2024

By Vidhushi RajPurohit

MUMBAI - The interbank call money rate closed near the Reserve Bank of India's standing deposit facility rate of 6.25% as demand for funds from banks remained subdued owing to surplus systemic liquidity, dealers said. Today, the one-day call money rate ended at 6.24%, against 5.75% on Wednesday. 

The liquidity surplus in the banking system was 2.46 trln rupees on Wednesday, against 2.48 trln rupees on Tuesday. Owing to the surplus liquidity and the lack of any major outflow, during the day, the call money rate traded in the range of 5.10-6.65%.

The government's month-end spending, which started from Aug 30, brought inflows of around 1 trln rupees into the banking system, widening the surplus liquidity. There were no additional inflows today, dealers said. The liquidity surplus will narrow henceforth owing to the absence of any major inflow in the fortnight starting Friday and the scheduled outflows for the excise duty, tax deducted at source and the advance tax payments.

"The payment for the excise duty and TDS (tax deducted at source) will likely take place either on Saturday or Monday," a dealer at a state-owned bank said. "The payment for advance tax payment will likely take place around Sep 16." 

Dealers are unsure of the exact date for the outflow of excise duty and TDS payment. "Usually the payment takes place on 6th and 7th of every month, but since 7th (Saturday) is a holiday in some parts of the country, the outflow could be on Monday," a dealer at a state-owned bank said. Saturday is a bank holiday for Ganesh Chaturthi in several RBI jurisdictions, including Mumbai.

Meanwhile, the central bank stepped in with an overnight variable rate reverse repo auction to manage the surplus liquidity and to prevent the interbank borrowing rates from falling too low, dealers said. Banks parked 405.30 bln rupees against the notified amount of 500 bln rupees.

"Banks had funds to deploy, and the auction was a good opportunity to book profit by lending funds at 6.49% when the triparty rate was trading at 6.21%," a dealer at a private bank said. On Friday, six variable reverse repo auctions of varying tenures, with an aggregate amount of 2.05 trln rupees, are due for reversal.

On Tuesday, banks' cash balance with the RBI stood at 9.77 trln rupees, against 9.81 trln rupees on Monday. So far in the current fortnight ending Friday, banks have maintained an average amount of 9.92 trln rupees against the statutory required limit of 9.89 trln rupees.

Market participants expect the RBI to announce a 14-day variable rate reverse auction on Friday as it is the last day for the current fortnight. "Banks might prefer not to lock up their funds in tomorrow's auction, if there is one, as major outflows are lined up in the next fortnight," a dealer at another state-owned bank said. 

The following are the other highlights:

* The weighted average call rate was 6.49%, against 6.46% on Tuesday.

* The weighted average rate for triparty repo was 6.30%, against 6.20% on Tuesday.

* The reversal of the standing deposit facility added 939.75 bln rupees to the banking system, while the reversal of the marginal standing facility drained 13.52 bln rupees. 

OUTLOOK

* On Friday, the three-day call money rate may open above 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 6.00-6.65%, dealers said.

CALL RATE

6.24%--Today's close for one-day loans

6.55%--Today's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above RBI's repo rate; liquidity remains in huge surplus

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

During the day, the interbank borrowing rates are likely to remain at and below the repo rate as the liquidity continues to stay in a large surplus, dealers said. "Banks have adequate funds with them, and no outflows are scheduled for the day," a dealer at a state-owned bank said.

On Wednesday, liquidity surplus in the banking system stood at 2.46 trln rupees, slightly down from 2.48 trln rupees on Tuesday, data from the RBI showed. The government's month-end spending on salary and pension payments has increased the surplus liquidity, dealers said. Market participants expect no major inflows during the day, as the month-end spending of the government likely ended on Wednesday.

"The surplus liquidity will remain in the current range, it has peaked due to the spending inflows," a dealer with a private bank said. "It will likely narrow from here, once the outflow for excise and TDS (tax deducted at source) payment starts." Excise duty and tax at source payments are likely to start on Monday, draining surplus cash early in the next fortnight, dealers said.

Market participants expect the RBI to announce an overnight variable rate reverse repo auction today due to the high liquidity surplus. "If the interbank borrowing rates trade below the RBI's repo rate, it might prompt the central bank to step in with an overnight VRRR auction," a dealer at a private bank said. At 0927 IST, the triparty repo rate was at 6.27%, below the RBI's repo rate of 6.50%.

On Wednesday, banks' cash balance with the RBI stood at 9.77 trln rupees against 9.81 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 6.46% on Wednesday.

* The weighted average rate for triparty repo was 6.26%, as against 6.20% on Wednesday.

* The reversal of the standing deposit facility added 939.75 bln rupees to the banking system, while the reversal of the marginal standing facility drained 13.52 bln rupees.

* The call rate is seen within the range of 6.20-6.60% during the day.

End

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

Edited by Akul Nishant Akhoury

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