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Informist, Friday, Sep 13, 2024

By Aaryan Khanna

NEW DELHI – The interbank call money rate ended at the Reserve Bank of India's repo rate of 6.50% today due to demand for funds from banks amid advance tax outflows, dealers said. The call money market rate for four-day loans settled at 6.50%, against 5.75% for one-day loans on Thursday. Money markets will be closed on Monday due to Id-e Milad.

"Triparty repo rates were comfortably below the repo rate in the first half, but after 1400 IST, the triparty repo rate started spiking to 6.75%, which suggested that the outflows had begun," a dealer at a private bank said. "There would be no issue at the system level, since the liquidity is heavily in surplus, but at the bank to bank level it was there."

Liquidity in the banking system was in a surplus of 1.96 trln rupees on Thursday, compared with 1.53 trln rupees on Wednesday. Advance tax outflows are expected to total 1-1.25 trln rupees, dealers said. While most of the outflow took place today, another chunk may exit the system on Tuesday, they said.

Liquidity has swelled in recent days due to foreign investment flowing into marquee initial public offerings that have been heavily oversubscribed. The funds held in escrow by banks are showing up in the banking system liquidity, and the actual liquidity surplus may be lower than the reported amount, dealers said.

"I think there is more demand for funds these days in the overnight markets than liquidity surplus is giving out," a dealer at a state-owned bank said.

On Thursday, the RBI conducted an overnight, 750-bln-rupee variable rate reverse repo auction. Banks participated aggressively at the auction, parking 722.40 bln rupees at a cut-off rate of 6.49%. This had allowed banks to gain some arbitrage, borrowing money from the triparty repo market overnight and parking it with the RBI, dealers said. The funds returned to banks today.

Banks maintained lower-than-required cash balances with the RBI. They maintained 9.69 trln rupees on Thursday, lower than the average daily cash reserve requirement of 9.90 trln rupees for the current fortnight Sep 20, according to the data. Banks have maintained higher cash balances with the RBI since the start of the fortnight, and so far they have maintained an average of 10.10 trln rupees for the current fortnight.

The following are the other highlights:

* The weighted average call rate was 6.62%, against 6.52% on Thursday.

* The weighted average rate for triparty repo was 6.43%, against 6.27% on Thursday.

* Reversal of the standing deposit facility added 962.75 bln rupees to the banking system, while reversal of the marginal standing facility drained 27.40 bln rupees.

OUTLOOK

* Money markets are shut on Saturday, and also on Monday for Id-e Milad

* 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 their reserve requirements.

* During the day, the call rate is seen in a range of 6.20-6.75%, dealers said.

CALL RATE

6.50%--Today's close for four-day loans

6.65%--Today's open for four-day loans

5.75%--Thursday'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 on demand from banks in early trade

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, dealers said. At 0930 IST, the four-day call money rate was at 6.65%, against 5.75% at close on Thursday for one-day loans. Money markets will be closed on Monday due to Id-e Milad.

Liquidity in the banking system was in a surplus of 1.96 trln rupees on Thursday, compared with 1.53 trln rupees on Wednesday. "The increase in the surplus is likely due to some inflows coming through regular government spending," a dealer with a private bank said. Some market participants have attributed the increase in the surplus to inflows from initial public offerings.

Amid the surplus liquidity in the banking system, market participants expect the interbank borrowing rates to trade at a moderate range despite the outflow for the advance tax payment which is lined up for the day. "Banks have sufficient funds for the tax outflows and the reversal of the overnight VRRR will also provide banks with additional funds to manage the outflows," a dealer at a private bank said. "Even if the rates peak during the day, they will ease down towards end." 

"Around 500 bln rupees is expected to leave the banking system today because of the tax outflow," a dealer at a state-owned bank said. 

On Thursday, the RBI conducted an overnight, 750-bln-rupee variable rate reverse repo auction. Banks participated aggressively at the auction, parking 722.40 bln rupees at a cut-off rate of 6.49%. "The interbank borrowing rates were at a low level, so banks got an opportunity to make arbitrage profit at the VRRR auction," a dealer with another state-owned bank said. "The fact that it was an overnight auction also helped, for a longer-tenure auction banks would not have shown the same participation." 

Banks maintained lower-than-required cash balances with the RBI. They maintained 9.69 trln rupees on Thursday, lower than the average daily cash reserve requirement of 9.90 trln rupees for the current fortnight Sep 20, according to the data. Banks have maintained higher cash balances with the RBI since the start of the fortnight, and so far they have maintained an average of 10.10 trln rupees for the current fortnight.

The following are the other highlights:

* The weighted average call rate was 6.70%, as against 6.52% on Thursday.

* The weighted average rate for triparty repo was 6.42%, as compared to 6.27% on Thursday.

* Reversal of the standing deposit facility added 962.75 bln rupees to the banking system, while reversal of the marginal standing facility drained 27.40 bln rupees. 

* The call rate is seen in a range of 6.20-6.60% 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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