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Informist, Wednesday, Sep 25, 2024

By Vidhushi RajPurohit

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 towards the end of the session, dealers said. The call money market rate for one-day loans settled at 5.75%, unchanged from Monday.

The call money rate, after trading around RBI's MSF rate during the early hours, dropped below the standing deposit facility of 6.25% in the latter half. Likely inflows from government spending and lack of any outflow for the day were the reasons cited by market participants. "Overall, there is a systemic deficit, but banks still had comfortable funds for maintaining reserve requirements," a dealer with a state-owned bank said. "Besides, there was no significant outflow during the day which would have prompted the banks to borrow at the money market." 

Liquidity deficit in the banking system was reduced slightly to 263.82 bln rupees on Tuesday, from a deficit of 334.47 bln rupees on Monday. Market participants expect the liquidity to return to surplus mode through inflows from the government's month-end spending. "Banks are not actively borrowing in the money market, as they expect the inflows from salary and pension payments to ease the deficit liquidity condition soon," a dealer with a private bank said. Dealers expect government month-end spending to start around Monday.

Market participants expected the RBI to announce a variable rate repo auction during the day if the interbank borrowing rates remained elevated. "Yesterday (Tuesday), RBI conducted a VRR auction as the TREPs (triparty repo) rate was trading around 6.75%," a dealer at a private bank said. "Today the rates eased on their own accord, barring any need for the RBI to intervene with a VRR auction."

On Tuesday, banks' cash balance with the RBI was 10.23 trln rupees, as against 9.83 trln rupees on Monday. The average daily requirement for the current fortnight that started on Saturday is 10.05 trln rupees. 

The following are the other highlights:

* The weighted average call rate was 6.68%, against 6.69% on Tuesday.

* The weighted average rate for triparty repo was 6.49%, against 6.66% on Tuesday.

* The reversal of the standing deposit facility added 623.81 bln rupees to the banking system, while the reversal of the marginal standing facility drained 14.24 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 early in the day 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

6.80%--Today's open for one-day loans

5.75%--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 MSF rate amid prevailing liquidity deficit 

MUMBAI – The interbank call money rate was above the Reserve Bank of India's marginal standing facility rate of 6.75% today owing to demand for funds from banks early in the day amid a prevailing liquidity deficit in the banking system, dealers said. At 0915 IST, the one-day call money rate was at 6.80%, against 5.75% at the close on Tuesday.

Market participants expect the interbank borrowing rate to remain elevated in the first half of the day or till the RBI announces a variable rate repo auction. "Though there are no scheduled outflows for the day, banks need funds to meet the reserve requirements and other daily operations," a dealer with a private bank said. "If the RBI comes with a short-tenure VRR auction, banks will likely bid actively at the auction." On Tuesday, RBI's two-day variable rate repo auction was oversubscribed, as banks put total bids of 910.35 bln rupees against the notified amount of 500 bln rupees. The RBI accepted bids worth 500.03 bln rupees at the cut-off rate of 6.64%.

"The money market rates have opened at a high level... if they continue to trade above the (RBI's) repo rate (6.50%), then the RBI would intervene with a VRR auction," a dealer with a private bank said. At 0920 IST, the weighted average triparty rate was 6.64%, while the call market rate was 6.80%.

On Tuesday, the liquidity deficit in the banking system was at 263.82 bln rupees, against the deficit of 334.47 bln rupees on Monday, according to RBI data. "Likely some inflows from government spending brought the slight reduction in the deficit," a dealer with a private bank said. The liquidity deficit is expected to narrow further in the next few days as inflows from the government's month-end spending enter the banking system, dealers said. 

Market participants expect the liquidity to improve substantially after the inflows from the government's month-end spending start. "Most likely the inflows will result in liquidity returning to the surplus mode," a dealer with a state-owned bank said. Around 1 trln rupees is the estimated amount of inflows from salary and pension payments, dealers said. 

Banks increased their cash reserves with the RBI. On Tuesday, banks maintained 10.23 trln rupees with the RBI, compared with 9.83 trln rupees on Monday. For the current fortnight, the average daily cash reserve requirement is 10.05 trln rupees, according to RBI data.

The following are the other highlights:

* The weighted average call rate was 6.80%, against 6.69% on Tuesday.

* The weighted average rate for triparty repo was 6.64%, against 6.66% on Tuesday.

* Reversal of the standing deposit facility added 623.81 bln rupees to the banking system, while reversal of the marginal standing facility drained 14.24 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 Tanima Banerjee

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