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Informist, Tuesday, Sep 17, 2024

By Siddhi Chauhan

MUMBAI – The interbank call money rate ended at the Reserve Bank of India's marginal standing facility rate of 6.75% due to firm demand for funds from banks as the liquidity surplus narrowed, dealers said. The call money market rate for two-day loans settled at 6.75%, as against 6.00% for the one-day loans on Monday.

On Monday, liquidity surplus in the banking system fell to 221.53 bln rupees, the lowest since Jun 27, from 1.35 trln rupees on Sunday, according to RBI data. Traders attributed the sharp decline in surplus to outflows of around 1.25 trln rupees for advance tax.
 

The RBI on Saturday said the money markets would be open on Monday following a shift in holiday for Id-e-Milad by the Maharashtra government to Wednesday, but that the settlement of secondary market transactions on Tuesday would stay the same. The payment to the government for the 220-bln-rupee weekly gilt auction held on Friday also took place today.

Outflows for advance tax for the September quarter which started on Friday are expected to drain around 1.5 trln rupees in total. The remaining outflows for the same took place during the day, dealers said.

"As per our estimates, outflows worth 800 bln rupees took place on Friday, around 300 bln yesterday (Monday), and the remaining will go today," a dealer at a state-owned bank said. "Generally, the payment for advance tax takes place on 15th of every month, but since it was a holiday it seems the settlement of this took place yesterday."

The cash crunch was also visible as the banks reduced the funds parked with the central bank under the standing deposit facility, dealers said. Funds parked by banks under SDF fell by around 640 bln rupees from the previous day. They increased their borrowing through the marginal standing facility by over 200 bln rupees.

On Monday, banks maintained 9.51 trln rupees with the RBI, compared with 10.10 trln rupees on Sunday. For the current fortnight ending Friday, the average daily cash reserve requirement is 9.90 trln rupees, according to RBI data. Banks had maintained a higher surplus ahead of outflows scheduled in the coming days.

Keeping the outflows into account, the central bank on Friday announced a three-day variable rate repo operation for 1 trln rupees for today. This was the first such fine-tuning operation since June. The market had widely expected the auction to be fully subscribed, but the result took some market participants by surprise. At the auction today, banks borrowed 826.30 bln rupees through three-day repo operations at a rate of 6.51%.

Before the auction, overnight night rates started to fall below the repo rate. Another reason for the undersubscription was that the repo operation will mature before goods and services tax outflows begin in earnest on Friday, dealers said.

"The (overnight) rates have fluctuated a lot today. At the auction, the rates were around 6.40%, so it made more sense to fulfil our borrowing needs through them," a dealer at another state-owned bank said. "But in the second half of trade, rates shot up to 7.00% because the outflows (advance tax) would have taken place around 1330 IST."

The following are the other highlights:

* The weighted average call rate was 6.64%, against 6.03% on Monday.

* The weighted average rate for triparty repo was 6.60%, against 6.63% on Monday.

* Reversal of the standing deposit facility added 430.07 bln rupees to the banking system, while reversal of the marginal standing facility drained 263.24 bln rupees. 

OUTLOOK
* Money markets are shut Wednesday on account of Id-e-Milad. On Thursday, the one-day call money rate may open near the RBI's repo rate due to demand for funds from banks early in the day 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

6.75%--Today's close for two-day loans

6.70%--Today's open for two-day loans

6.00%--Monday'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 narrows sharply

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 liquidity surplus narrowed to the lowest since Jun 27, dealers said. At 0930 IST, the two-day call money rate was at 6.70%, against 6.00% at close on Monday for one-day loans.

Money markets will be closed on Wednesday due to the postponement of the holiday for Id-e Milad. Money markets were earlier scheduled to be closed on Monday due to Id-e-Milad, but the holiday was shifted to Wednesday by the Maharashtra government.

On Monday, liquidity in the banking system was in a surplus of 221.53 bln rupees, as against 1.35 trln rupees on Sunday. "The outflow for advance tax payments has led to the sharp decline in the surplus liquidity," a dealer with a private bank said. "There might be some minor outflow today as well." Outflow to the tune of 1.00-1.25 trln rupees is estimated on account of advance tax payments. Today, the systemic liquidity surplus might get a boost from the central bank's variable rate repo auction, dealers said. 

The RBI will conduct a three-day, 1-trln-rupee variable rate repo auction at 1030-1100 IST, the central bank said in a press release on Friday. Market participants expect banks to participate aggressively at the auction to make up for the narrowing of the surplus liquidity. Dealers expect banks to bid around 750 bln rupees at the auction at a cut-off range of 6.65-6-75%. Some dealers also expect the auction to be fully subscribed amid the narrowed surplus liquidity. 

Market participants expect interbank borrowing rates to remain firm during the day owing to the sharp drop in the surplus liquidity on account of advance tax outflows, dealers said. "The rates might moderate later in the day, if banks are able to meet their funding requirements from the VRR (variable rate repo) auction," a dealer with a private bank said.

Banks reduced their cash balance with the central bank as the surplus liquidity reduced. On Monday, banks maintained 9.51 trln rupees with the RBI, compared with 10.10 trln rupees on Sunday. For the current fortnight ending Friday, the average daily cash reserve requirement is 9.90 trln rupees, according to RBI data. "For the current fortnight, banks have been mostly maintaining higher than the mandated cash balance with the RBI," a dealer with another private bank said. "Banks had already factored in the reduction of surplus due to the tax outflow." 

The following are the other highlights:

* The weighted average call rate was 6.70%, as against 6.03% on Monday.

* The weighted average rate for triparty repo was 6.60%, as compared to 6.63% on Monday.

* Reversal of the standing deposit facility added 430.07 bln rupees to the banking system, while reversal of the marginal standing facility drained 263.24 bln rupees. 

* The call rate is seen in a 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 Ashish Shirke

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