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Informist, Monday, Sep 23, 2024

By Vidhushi RajPurohit and Richard Fargose

MUMBAI - The interbank call money rate ended sharply below the Reserve Bank of India's standing deposit facility rate of 6.25% today on account of low demand for funds from banks in the latter part of the session, dealers said. The call money market rate for one-day loans settled at 5.75%, against 6.40% for two-day loans on Saturday.

On Sunday, liquidity in the banking system was in a deficit of 300.73 bln rupees from the surplus of 260.93 bln rupees on Friday. Outflows on account of payment for goods and services tax resulted in the reduction of the surplus liquidity, dealers said. "Around 700 bln rupees is estimated to have left the (banking) system on Saturday, which led the liquidity to slip into deficit," a dealer with a private bank said.

Market participants expect the liquidity condition to improve this week once the inflows from the government's month-end spending enter the banking sytem. The inflow from salary and pension payments is expected to begin later this week, dealers said. 

On the lines of market participants' expectations, the RBI conducted an overnight, 500-bln-rupee variable rate repo auction. The auction was oversubscribed as banks put bids worth 1.03 trln rupees. Central banks accepted bids worth 500.07 bln rupees at a cut-off rate of 6.65%. 

On Sunday, banks' cash balance with the RBI stood at 9.68 trln rupees, against 9.69 trln rupees on Saturday. The average daily requirement for the current fortnight, which started on Saturday, is 10.05 trln rupees. "Banks prefer to maintain higher than the required limit of cash balance with the central bank at the start of the fortnight but since the liquidity is no longer in surplus, the amount was lower," a dealer with a state-owned bank said. 

The following are the other highlights:

* The weighted average call rate was 6.68%, against 6.29% on Friday.

* The weighted average rate for triparty repo was 6.67%, against 6.73% on Friday.

* The reversal of the standing deposit facility added 437.62 bln rupees to the banking system, while the reversal of the marginal standing facility drained 292.37 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

5.75%--Today's close for one-day loans

6.70%--Today's open for one-day loans

6.40%--Saturday's close for three-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above RBI's repo rate; GST outflow weighs on liquidity 

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 0940 IST, the one-day call money rate was at 6.70%, against 6.40% at close for two-day loans on Saturday.

On Friday, the liquidity surplus in the banking system was 260.93 bln rupees, against a surplus of 248.24 bln rupees on Thursday, according to RBI data. The liquidity surplus might narrow on account of outflows for payment of goods and services tax which would have left the banking system on Saturday, dealers said.

"The liquidity might have slipped into deficit on Saturday as outflow for the GST payment would have left the (banking) system," a dealer at another state-owned bank said. "Today also, there will be outflows as the remaining GST payment will exit the system." 

Interbank borrowing rates might remain firm during the day owing to demand for funds from banks amid goods and services tax outflows, dealers said. "Liquidity is in a tight condition and the payment for GST is expected to further reduce the range, hence banks might show greater activity in the call money market today to meet the demand for funds," a dealer with a private bank said.

Market participants expect liquidity conditions to improve in the current fortnight, which started on Saturday, owing to scheduled inflows through the government's month-end spending. "This week, banks are expecting inflows from the salary and pension payments to lift liquidity, and after the GST payment there are no major outflows in sight," a dealer at a state-owned bank said.

Amid low liquidity and outflows for the payment of goods and services tax payment, on Friday, the RBI's 14-day, 250-bln-rupee variable rate repo auction was oversubscribed. The central bank accepted bids worth 250.02 bln rupees at a cut-off rate of 6.52%. The auction will be reversed on Oct 4. "Banks put aggressive bids at the VRR auction to have adequate funds to meet both - outflow and the weekend requirements," a dealer with another state-owned bank said. 

Market participants expect the central bank to announce a shorter-tenure variable rate repo auction during the day to infuse liquidity in the banking system. "RBI might announce a 2-day or 3-day, 500-bln-rupee, VRR auction," a dealer at a state-owned bank said.

On Friday, the last day of the previous reporting fortnight, banks parked 9.63 trln rupees with the RBI against the average daily requirement of 9.90 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 6.70%, against 6.29% on Friday.

* The weighted average rate for triparty repo was 6.68%, against 6.73% on Friday.

* Reversal of the standing deposit facility added 54.64 bln rupees to the banking system, while reversal of the marginal standing facility drained 50.60 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 Deepshikha Bhardwaj

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