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Informist, Tuesday, Oct. 1, 2024

By Vidhushi RajPurohit

MUMBAI - The interbank call money rate ended slightly below the Reserve Bank of India's standing deposit facility rate of 6.25% on Tuesday on account of low demand for funds from banks as the liquidity surplus widened on Monday, dealers said. The call money market rate for two-day loans settled at 5.75%, against 6.24% for one-day loans on Monday. Money market will be closed on Wednesday on account of Gandhi Jayanti.

The liquidity returned to surplus mode towards the end of last week as inflows from salary and pension payments started to enter the banking system, dealers said. The liquidity in the banking system was in a surplus of INR 1.46 trillion on Monday, as against INR 798.06 billion on Sunday. "This week banks do not have any scheduled outflows," a dealer with a state-owned bank said. "Hence, the liquidity is in a comfortable range as the inflow is also expected to continue for a few more days."

Amid surplus liquidity, banks bid aggressively at the RBI's three-day, INR 1.75 trillion variable rate reverse repo auction. Banks parked a total amount of INR 938.15 billion at the auction. The funds parked at Tuesday's auction were much higher than Monday's amount of INR 10 billion at the RBI's four-day variable rate reverse repo auction.

Market participants are of the view that increased participation at the Tuesday's variable rate reverse repo auction could be attributed to the low range of money market rates during the day. "The interbank borrowing rates were trading around the RBI's SDF (standing deposit facility) rate (6.25%) for the majority of the trading hours," a dealer with another state-owned bank said. "So banks got an opportunity to make arbitrage profit by parking their funds with the RBI at 6.49%." At 1630 IST, the weighted average triparty repo rate was at 6.28%.

On Monday, banks maintained INR 10.37 trillion with the RBI for cash reserve requirements, as against INR 10.24 trillion on Sunday. For the current fortnight ending Friday, the average daily cash reserve requirement is INR 10.05 trillion, according to RBI data.

The following are the other highlights:

* The weighted average call rate was 6.48%, against 6.68% on Monday.

* The weighted average rate for triparty repo was 6.28%, against 6.63% on Monday.

* Reversal of the standing deposit facility added INR 1.88 trillion to the banking system, while reversal of the marginal standing facility drained INR 57.61 billion.

OUTLOOK

* The money market is closed on Wednesday due to the holiday for Gandhi Jayanti.

* 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 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%--Tuesday's close for two-day loans

6.55%--Tuesday's open for two-day loans

6.24%--Monday's close for one-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo rate; liquidity surplus widens due to govt spending

MUMBAI – The interbank call money rate was slightly above the Reserve Bank of India's repo rate of 6.50% Tuesday, owing to demand for funds from banks early in the day to meet their reserve requirements, dealers said. At 0930 IST, the two-day call money rate was at 6.55%, against 6.24% at close on Monday for one-day loans.

Money markets will be closed on Wednesday due to the holiday for Gandhi Jayanti. On Monday, surplus systemic liquidity widened sharply. The liquidity in the banking system was in a surplus of INR 1.46 trillion on Monday, as against INR 798.06 billion on Sunday. The increase in the surplus liquidity is attributed to inflows from the government's month-end spending, which are estimated to be around INR 1.45 trillion, dealers said. Market participants said that the inflow amount is comparatively greater this Sept.-end as additional inflows entered via interest payments which were due towards the quarter-end. "The inflow from salary and pension payments will last for a few more days," a dealer with a state-owned bank said.

Amid surplus liquidity, banks have increased their cash reserves with the RBI. On Monday, banks parked INR 10.37 trillion, against INR 10.24 trillion on Sunday. For the current fortnight, ending Friday, the average daily cash reserve requirement is INR 10.05 trillion, according to RBI data.    

The RBI will conduct a three-day, INR 1.75 trillion variable rate reverse repo auction at 1030-1100 IST, the central bank said in a press release post market hours on Monday. "The RBI also expected the surplus to widen further, hence it announced a VRRR auction," a dealer with a private bank said. "Banks might not bid aggressively at the auction as they need funds for the reserve requirements and if there is participation it will be because the money market rates would be trading at a lower level." Market participants expect the offers at Tuesday's auction to be around INR 550 billion.  

Market participants expect interbank borrowing rates to trade around the RBI's repo rate of 6.50%, and some dealers see the rates to trade around 6.30% due to comfortable liquidity in the banking system. "On Monday, the TREPs (triparty repo) rate was trading above the RBI's repo due to outflows for loan disbursements which are scheduled around quarter-end," a dealer with another state-owned bank said. "Today (Tuesday), the rates might be in a moderate range due to lack of any significant scheduled outflows." At 0930 IST, the weighted average triparty repo rate was at 6.36%.

The following are the other highlights:

* The weighted average call rate was 6.55%, as against 6.68% on Monday.

* The weighted average rate for triparty repo was 6.36%, as compared to 6.63% on Monday.

* Reversal of the standing deposit facility added INR 1.88 trillion to the banking system, while reversal of the marginal standing facility drained INR 57.61 billion. 

* 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 Vidhi Verma

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