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Informist, Tuesday, Sep 10, 2024

By Siddhi Chauhan

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%, unchanged from Monday.

On Monday, the liquidity surplus in the banking system was 1.35 trln rupees, slightly lower than 1.52 trln rupees on Sunday, according to RBI data. The liquidity surplus narrowed due to outflows worth 290 bln rupees for the payment of government securities auctioned on Friday, dealers said.  

Some dealers also attributed the fall in liquidity surplus to outflows for tax deducted at source. While most of them said the outflows for these have already drained around 500 bln rupees from the banking system in the previous week, some said minor outflows for these took place on Monday.

Fearing a rise in interbank rates in the coming days, banks maintained higher cash buffers in order to account for outflows scheduled at the end of the week. As per data from RBI's website, banks parked 816.53 bln rupees through the standing deposit facility, against 653.48 bln rupees the previous day.

"Banks would have parked funds as a provision in order to account for last moment fund mismatches," a dealer at a state-owned bank said. "This would be of use as we know that rates are expected to rise towards the end of this week due to outflows."

Liquidity in the banking system is expected to fall further in the coming days as outflows for advance tax will start from Friday, dealers said. These outflows were supposed to start from Monday, but banks were shut on account of Id-e Milad. Traders pegged the amount of outflows for the same at 800 bln rupees to 1 trln rupees, dealers said. 

The following are the other highlights:

* The weighted average call rate was 6.50%, against 6.52% on Monday.

* The weighted average rate for triparty repo was 6.33%, against 6.29% on Monday.

* The reversal of the standing deposit facility added 816.53 bln rupees to the banking system, while the reversal of the marginal standing facility drained 12.17 bln rupees. 

OUTLOOK

* On Wednesday, 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

6.40%--Monday'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 narrows on tax outflows

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 banks early in the day to meet their reserve requirements as the surplus liquidity narrowed further, dealers said. At 0930 IST, the one-day call money rate was at 6.60%, against 6.40% on Monday.

On Monday, the liquidity surplus in the banking system was 1.35 trln rupees, slightly lower than 1.52 trln rupees on Sunday, according to RBI data. The surplus liquidity narrowed down on account of payment for excise duty and tax deducted at source, dealers said. "The outflow for the payment of excise duty and TDS happened in tranches on Friday and Monday," a dealer at a state-owned bank said. 

Market participants are of the view that interbank borrowing rates will ease later in the day, as liquidity still remains in a comfortable range. "The surplus liquidity, though it narrowed during the weekend, was in a comfortable position for the rates to remain in a moderate range on Monday," a dealer at a state-owned bank said. "Since there are no scheduled outflows for the day, call money market rate might trade at or below RBI's repo rate today as well." 

Liquidity in the banking system is expected to reduce further in the fortnight started Saturday on account of payment for advance tax, dealers said. "The outflow for advance tax payment will likely leave the (banking) system around Sep 16," a dealer with a private bank said. Market participants do not expect any major inflows or outflows for the day.

Market participants expect the RBI to announce a short-tenure variable rate reverse repo auction during the day. "Though the surplus liquidity has narrowed down, the interbank borrowing rate continues to trade at lower than the central bank's repo rate," a dealer with another state-owned bank said. "This might cause the RBI to step in with a 3-day or a 4-day VRRR." Today, reversal of the 4-day, 1-trln-rupee variable rate reverse repo auction will result in an inflow of 483.95 bln rupees into the banking system.

On Monday, banks maintained 10.06 trln rupees with the RBI, compared with 10.10 trln rupees on Sunday. For the current fortnight, the average daily cash reserve requirement is 9.90 trln rupees, according to RBI data.

The following are the other highlights:

* The weighted average call rate was 6.60%, against 6.52% on Monday.

* The weighted average rate for triparty repo was 6.33%, against 6.29% on Monday.

* Reversal of the standing deposit facility added 816.53 bln rupees to the banking system, while reversal of the marginal standing facility drained 12.17 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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