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Informist, Monday, Sep 9, 2024

By Vidhushi RajPurohit

MUMBAI - The interbank call money rate ended below the Reserve Bank of India's repo rate of 6.50% today on account of low demand for funds from banks as surplus liquidity remains comfortable despite narrowing, dealers said. The call money market rate for one-day loans settled at 6.40%, against 6.25% for three-day loans on Friday.

On Sunday, surplus liquidity in the banking system narrowed to 1.52 trln rupees from 2.35 trln rupees on Friday. Outflows on account of excise duty and tax deducted at source resulted in the reduction of the surplus liquidity, dealers said.

"Since Saturday was a bank holiday in Maharashtra, the outflow for the TDS and excise payments happened in tranches," a dealer with a state-owned bank said. "While some of the tax amount seemed to have been debited on Friday, the remaining amount would have left the (banking) system today." Market participants expect the total outflows for excise duty and tax at source payments to be around 500 bln rupees. 

Banks also deployed their funds towards maintaining cash reserves with the central bank, dealers said. On Sunday, banks' cash balance with the RBI stood at 10.10 trln rupees, against 9.96 trln rupees on Friday. The average daily requirement for the current fortnight, which started on Saturday, is 9.90 trln rupees.

"Banks will try to maintain excess reserves with the RBI at the start of the fortnight," a dealer with a private bank said. "Hence, when the outflows for the advance tax payment shrinks the surplus liquidity it will not put any additional burden on the bank to meet the reserve requirements." The payment for advance tax is scheduled around Sep 15.

Despite the narrowing liquidity surplus, interbank borrowing rates were below the RBI's standing deposit facility rate of 6.25% during the day. In early trading hours, banks expected the RBI to step in with a short-tenure variable rate reverse repo rate, dealers said, but the central bank did not conduct any auctions today.

"The surplus liquidity narrowed down on Sunday, this might have been the reason for the lack of any reverse repo announcement today," a dealer with another state-owned bank said. 

The following are the other highlights:

* The weighted average call rate was 6.52%, against 6.48% on Friday.

* The weighted average rate for triparty repo was 6.29%, against 6.27% on Friday.

* The reversal of the standing deposit facility added 653.48 bln rupees to the banking system, while the reversal of the marginal standing facility drained 111.53 bln rupees. 

OUTLOOK

* On Tuesday, the one-day call money rate may open near the RBI's repo rate due to demand for funds from banks in early trade to meet the reserve requirements.

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

CALL RATE

6.40%--Today's close for one-day loans

6.60%--Today's open for one-day loans

6.25%--Friday'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; liquidity surplus may narrow further 

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% today, owing to demand for funds from some banks early in the day to meet their reserve requirements, dealers said. At 0930 IST, the one-day call money rate was at 6.60%, against 6.25% for three-day loans on Friday.

The interbank borrowing rates might ease during the day, as surplus liquidity remains in a comfortable range, dealers said.

On Friday, the liquidity surplus in the banking system was 2.35 trln rupees, slightly down from 2.55 trln rupees on Thursday, according to RBI data. The surplus liquidity might narrow a bit further on account of outflows for the payment of excise duty and tax at source, dealers said. "Around 450 bln rupees is expected to leave the (banking) system due to the excise and TDS (tax deducted at source) payment lined up for the day," a dealer at a state-owned bank said.

Market participants expect the liquidity surplus to be reduced in the current fortnight, which started on Saturday, owing to the scheduled outflow for the advance tax payment. "This fortnight, banks do not have any major inflows to back on against the outflow for the advance tax payment," a dealer at a state-owned bank said. The payment for the advance tax is scheduled to take place around Sep 15, dealers said. 

On Friday, banks only parked 170.83 bln rupees at the 14-day, 500-bln-rupee variable rate reverse repo auction. After the underwhelming response at the 14-day auction, the RBI conducted a 4-day, 1-trln-rupee variable rate reverse repo auction. Banks parked 483.95 bln rupees at the second auction. "Banks preferred to park funds at the 4-day auction over the 14-day, so as not to lock up their funds when the outflow for the advance tax payment starts," a dealer with another state-owned bank said. The reversal of the 14-day auction is on Sep 20, while the 4-day variable rate reverse repo auction will reverse on Tuesday.

Market participants expect the central bank to announce a shorter-tenure variable rate reverse repo auction during the day to manage the surplus liquidity in the banking system. 

On Friday, the last day of the previous reporting fortnight, banks parked 9.96 trln rupees with the RBI against the average daily requirement of 9.89 trln rupees. During the last fortnight, banks maintained an average daily balance of 9.92 trln rupees with the central bank. 

The following are the other highlights:

* The weighted average call rate was 6.60%, against 6.48% on Friday.

* The weighted average rate for triparty repo was 6.27%, unchanged from Friday.

* Reversal of the standing deposit facility added 398.38 bln rupees to the banking system, while reversal of the marginal standing facility drained 25.65 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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