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Informist, Wednesday, Sep 11, 2024

By Siddhi Chauhan

MUMBAI - The interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 6.25% today on account of low demand for funds from banks as surplus liquidity remains comfortable despite narrowing over the past few days, dealers said. The call money market rate for one-day loans settled at 5.75%, against 6.40% on Tuesday.

On Tuesday, the liquidity surplus in the banking system was 1.08 trln rupees, down from 1.35 trln rupees on Monday, according to RBI data. The surplus may have narrowed slightly due to a few leftover payments for excise duty and tax deducted at source payments, dealers said.

The banks have been parking funds with the central bank through the standing deposit facility in anticipation of outflows in the coming days, dealers said. "Banks are trying to maintain a cushion ahead of the outflows for advance tax which will displace a large chunk of funds," a dealer at a state-owned bank said. "This is why we are seeing very little participation in VRRR auctions as well."

At 1000-1030 IST today, the RBI conducted a two-day variable rate reverse repo auction for a notified amount of 1 trln rupees. At the auction, banks only parked 250 bln rupees with the central bank at a rate of 6.49% citing unavailability of further funds, dealers said.

Today, outflows for the payment of state government securities worth 137.90 bln rupees took place, while there were limited inflows on account of some initial public offerings in the capital market. Apart from that, there were no other inflows or outflows scheduled for the day, dealers said.

Going forward, advance tax outflows are expected to exert pressure on the banking system's liquidity, resulting in a rise in interbank rates, dealers said. The market expects around 1 trln rupees to be drained out of the banking system starting Friday for the outflows, dealers said. These outflows were to start from Monday, but banks are shut that day for Id-e Milad.

The following are the other highlights:

* The weighted average call rate was 6.54%, against 6.50% on Tuesday.

* The weighted average rate for triparty repo was 6.40%, against 6.33% on Tuesday.

* Reversal of the standing deposit facility added 1.04 trln rupees to the banking system, while reversal of the marginal standing facility drained 12.89 bln rupees. 

OUTLOOK

* On Thursday, 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 their reserve requirements.

* 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

6.60%--Today's open for one-day loans

6.40%--Tuesday'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 surplus to 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 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% at close on Tuesday.

On Tuesday, the liquidity surplus in the banking system was 1.08 trln rupees, down from 1.35 trln rupees on Monday, according to RBI data. Market participants expect the surplus to narrow further due to outflows on account of advance tax payment. The payment for advance tax payment will take place around Friday. 

On Tuesday, the RBI announced a two-day, 1-trln-rupee variable rate reverse repo auction. Market participants expect banks to bid around 200 bln rupees at the auction amid the narrowed surplus liquidity. "Liquidity will remain a bit tight for this fortnight as outflow for advance tax payment is also due for this week, so banks will not want to lock up their funds," a dealer with a state-owned bank said. "Besides, the interbank borrowing rates are also high, so banks do not have an opportunity to book arbitrage profit by parking their funds at RBI's VRRR auction."  

Market participants are of the view that interbank borrowing rates will remain firm during the day, as the liquidity surplus has narrowed. They do not expect any major inflows or outflows for the day.

On Tuesday, banks maintained 10.56 trln rupees with the RBI, compared with 10.06 trln rupees on Monday. 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 6.50% on Tuesday.

* The weighted average rate for triparty repo was 6.46%, against 6.33% on Tuesday.

* Reversal of the standing deposit facility added 1.04 trln rupees to the banking system, while reversal of the marginal standing facility drained 12.89 bln rupees. 

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

End

Edited by Ashish Shirke

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