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Informist, Thursday, Oct. 3, 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% as demand for funds from banks remained subdued owing to high surplus liquidity in the banking system, dealers said. The one-day call money rate Thursday ended at 5.75%, unchanged from two-day loans on Tuesday.

The liquidity surplus in the banking system Tuesday was INR 2.07 trillion, the highest level since Sept. 6 and against INR 1.46 trillion on Monday. The liquidity surplus has been gradually rising since the government's month-end spending started, dealers said. Liquidity in the banking system slipped into deficit on Sept. 18, for the first time since Jun. 27, on account of outflows for the payment of goods and services tax. The quarter-end spending turned the systemic liquidity from deficit to surplus towards the end of September. 

Market participants expect the surplus liquidity to increase further, before the outflows for tax-deducted-at-source and excise duty start. "The payment for the TDS and excise duty will likely start from Monday," a dealer with a state-owned bank said. "However, the amount will not be high enough to pull down the surplus significantly." Owing to the surplus liquidity and lack of any major outflow during the day, the call money rate was in the range of 5.10-6.55%.

Despite the high surplus liquidity, banks parked only INR 481.20 billion at the RBI's overnight INR 1.75 trillion variable rate reverse repo auction. The amount of bids was lower than what market participants expected. "The result came as a surprise because the money market rates were trading below the RBI's repo rate and the surplus liquidity was also in a comfortable range," a dealer with another state-owned bank said. Market participants expect the RBI to conduct a 14-day, variable rate reverse repo auction on Friday.

On Wednesday, cash balance of banks with the RBI stood at INR 10.26 trillion, against INR 10.32 trillion on Tuesday. So far in the current fortnight ending Friday, banks have maintained an average of INR 10.11 trillion with the RBI against the statutory requirement of INR 10.05 trillion.

The following are the other highlights:

* The weighted average call rate was 6.45%, against 6.48% on Tuesday.

* The weighted average rate for triparty repo was 6.17%, against 6.28% on Tuesday.

* Reversal of the standing deposit facility added INR 416.66 billion to the banking system, while reversal of the marginal standing facility drained INR 2.05 billion.

OUTLOOK

* On Friday, the three-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

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

6.45%--Thursday's open for one-day loans

5.75%--Tuesday's close for two-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below RBI's repo rate; liquidity surplus highest since Sept 6

MUMBAI – The interbank call money rate was slightly below the Reserve Bank of India's repo rate of 6.50% Thursday, owing to low demand for funds from banks amid increased surplus liquidity, dealers said. At 0930 IST, the one-day call money rate was at 6.45%, against 5.75% at close on Tuesday for two-day loans. Money markets were shut on Wednesday on account of Gandhi Jayanti. 

On Tuesday, the surplus systemic liquidity widened to INR 2.07 trillion from INR 1.46 trillion on Monday. The liquidity surplus was the highest since Sept. 6. Dealers have attributed the increase in the surplus liquidity to the inflows from the government's month-end spending. "The increase in the surplus liquidity is on expected lines as banks were anticipating higher inflows on account of quarter-end interest payments along with salary and pension payments," a dealer with a private bank said. 

Market participants expect interbank borrowing rates to trade in a moderate range during the day. "The call money rate might ease further later in the day and might even be around the RBI's SDF (standing deposit facility) rate (6.25%)," a dealer with a state-owned bank said. On the lines of market participants' expectations, the RBI announced an overnight variable rate reverse repo auction for a notified amount of INR 1.75 trillion between 1100 IST and 1130 IST Thursday.

Dealers are of the view that banks might bid aggressively. "The interbank borrowing rates are low, and they will likely stay around the low level," a dealer with a private bank said. "Hence, banks will prefer to park their funds at a VRRR auction." 

On Tuesday, banks maintained INR 10.32 trillion with the RBI, against INR 10.37 trillion on Monday. 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 6.55%, as against 6.48% on Tuesday.

* The weighted average rate for triparty repo was 6.30%, as compared to 6.28% on Tuesday.

* Reversal of the standing deposit facility added INR 416.66 billion to the banking system, while reversal of the marginal standing facility drained INR 2.05 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 Ashish Shirke

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