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Informist, Friday, Oct. 4, 2024

By Vidhushi RajPurohit

MUMBAI - The interbank call money rate ended at 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 three-day call money rate ended at 6.25%, against 5.75% for one-day loans on Thursday.

Money market rates were below the RBI's standing deposit facility rate for the majority of the trading hours as demand for funds remained subdued amid high surplus liquidity. The liquidity surplus in the banking system widened to INR 2.88 trillion on Thursday, the highest since July 2022, according to RBI data. The liquidity surplus widened on account of salary and pension payments, dealers said.

Outflows on account of tax deducted at source and excise duty will likely begin from Monday, dealers said. "Banks have ample surplus liquidity and the amount of the tax outflows will be around INR 500 billion," a dealer with a private bank said. Dealers expect the liquidity to remain comfortable in the next fortnight, starting Saturday.

Banks parked only INR 442.75 billion at the RBI's 14-day INR 1.75-trillion variable rate reverse repo auction. "Banks did not put higher bids because locking their funds for an entire fortnight poses risk to the banks in case of a sudden drop in surplus liquidity," a dealer with a state-owned bank said. The reversal of the auction is on Oct. 18.

On Thursday, banks' cash balance with the RBI stood at INR 9.86 trillion, against INR 10.26 trillion on Wednesday. The average daily cash reserve requirement for this fortnight ending Friday is INR 10.05 trillion.  

The following are the other highlights:

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

* The weighted average rate for triparty repo was 6.20%, against 6.17% on Thursday.

* Reversal of the standing deposit facility added INR 1.82 trillion to the banking system, while reversal of the marginal standing facility drained INR 6.36 billion.

OUTLOOK

* On Saturday, the two-day call money rate may open below the RBI's repo rate of 6.50% because of low demand for funds from banks amid the liquidity surplus.

* As is usually the case on Saturdays, volume in the market is expected to be low.

* During the day, the call rate is seen in a range of 6.00-6.60%, dealers said.

CALL RATE

6.25%--Friday's close for three-day loans

6.50%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: At RBI's repo rate; liquidity surplus highest since July 2022

MUMBAI – The interbank call money rate was at the Reserve Bank of India's repo rate of 6.50% Friday, owing to demand for funds from banks in early trade to meet reserve requirements, dealers said. At 0945 IST, the three-day call money rate was at 6.50%, against 5.75% at close on Thursday for one-day loans.

Market participants expect interbank borrowing rates to ease later in the day, citing high surplus liquidity. The surplus liquidity in the banking system was at INR 2.88 trillion, the highest since July 2022, RBI data showed. Market participants attributed the swelling of surplus liquidity to inflows from the government's month-end spending. "The inflow this time has been higher than the usual spending," a dealer with a state-owned bank said. "Banks expected inflows in the range of INR 1.50 trillion to INR 2.00 trillion, but the actual amount has been much higher this time." 

Post market hours on Thursday, the RBI announced a 14-day variable rate reverse repo auction for INR 1.75 trillion. Despite surplus liquidity, dealers do not expect banks to participate aggressively at the auction. "The long tenure of the auction will likely dampen the participation from the banks' side," a dealer with another state-owned bank said. Market participants expect bids at Friday's auction to be around INR 500 billion.

"TDS (tax at source) and excise duty outflows are scheduled to take place before the reversal date of the auction," a dealer with a private bank said. "Banks would not like to lock up their funds ahead of outflows." The auction is due for reversal on Oct. 18. Market participants expect the outflow for tax at source and excise duty to take place around Oct. 7. "There are chances of some part of the tax outflow to take place today (Friday) as well," a dealer with a state-owned bank said.

Dealers expect money market rates to trade below RBI's repo rate during the day. "Usually, the money market rates are expected to spike on a reporting Friday," a dealer with a private bank said. "However, banks have maintained adequate reserves with the RBI and the current systemic liquidity is also in high surplus, so the rates will likely ease."

On Thursday, banks' cash balance with the RBI stood at INR 9.86 trillion, against INR 10.26 trillion on Wednesday. The average daily cash reserve requirement for this fortnight is INR 10.05 trillion.  

The following are the other highlights:

* The weighted average call rate was 6.50%, as against 6.45% on Thursday.

* The weighted average rate for triparty repo was 6.20%, as compared to 6.17% on Thursday.

* Reversal of the standing deposit facility added INR 1.82 trillion to the banking system, while reversal of the marginal standing facility drained INR 6.36 billion.  

* The call rate is seen in a range of 6.20-6.75% during the day. (Vidhushi RajPurohit)

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Saji George Titus

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