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Informist, Monday, Oct. 7, 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% due to low demand for funds from banks owing to high surplus liquidity in the banking system, dealers said. The one-day call money rate ended at 5.75%, against 5.00% for two-day loans on Saturday.

During the day, dealers reported outflows for the payment of tax deducted at source and excise duty. "The tax outflows will likely take place in tranches and on Tuesday there might also be some minor outflows," a dealer with a private bank said. Despite the outflows, the interbank borrowing rates were below the RBI's repo rate for most of the day due to ample systemic surplus liquidity, dealers said. "The amount for the tax outflows is much lower compared to the current surplus liquidity," a dealer with a state-owned bank said. Market participants expect tax outflows to be in the range of INR 400 billion to INR 600 billion.

The call money rate was in the range of 5.10%-6.50%. Meanwhile, the triparty repo rate stayed in the range of 6.11%-6.31%, below the RBI's repo rate of 6.50%.

On Sunday, the surplus liquidity in the system was at INR 2.02 trillion, against INR 2.81 trillion on Friday. Dealers said the slight reduction in the surplus was due to banks deploying funds towards maintaining cash reserves with the RBI. "There were no outflows during the weekend, banks used the surplus funds towards maintaining cash reserves with the RBI," a dealer with a private bank said. "Banks did not have urgent need for funds so it made sense for them to maintain higher reserve with the RBI at the start of the new fortnight."

On Sunday, banks' cash balance with the RBI stood at INR 10.56 trillion, against INR 9.93 trillion on Friday. The average daily cash reserve requirement for this fortnight that began on Saturday is INR 10.02 trillion.  

Banks parked only INR 368.25 billion at the RBI's four-day INR 750.00-billion variable rate reverse repo auction. "The result aligned with what the market was expecting," a dealer with a state-owned bank said. "Banks did not want to lock up their funds for four days, more so when during the day there are scheduled tax outflows." The reversal of the auction is on Friday. "Besides, banks had already parked around INR 400 billion at the RBI's 14-day VRRR auction," the dealer added.

The following are the other highlights:

* The weighted average call rate was 6.43%, against 6.09% on Saturday.

* The weighted average rate for triparty repo was 6.20%, against 6.25% on Saturday.

* Reversal of the standing deposit facility added INR 1.31 trillion to the banking system, while reversal of the marginal standing facility drained INR 7.58 billion.

OUTLOOK

* On Tuesday, the one-day call money rate may open near the RBI's repo rate of 6.50% because of demand for funds from banks to meet reserve requirements.

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

CALL RATE

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

6.50%--Monday's open for one-day loans

5.00%--Saturday's close for two-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: At RBI's repo rate on demand for funds from banks in early trade

MUMBAI – The interbank call money rate was at the Reserve Bank of India's repo rate of 6.50% on Monday, owing to demand for funds from some banks early in the day to meet their reserve requirements, dealers said. At 0930 IST, the one-day call money rate was at 6.50%, against 5.00% for two-day loans on Saturday.

Interbank borrowing rates are likely to ease during the day, as liquidity remains in surplus mode, dealers said. "Today, banks might have outflows for the payment of tax deducted at source and excise duty," a dealer with a state-owned bank said. "However, the liquidity is in high surplus for banks to manage the outflows without borrowing too aggressively at the money market." No other significant outflows are scheduled for the day, dealers said.

Market participants expect the RBI to conduct a short-tenure variable rate reverse repo auction if the interbank borrowing rates trade remain below the RBI's repo rate. " If the RBI announces a VRRR, banks might not put high bids at the auction because they will not prefer to lock up their funds ahead of the tax outflows," a dealer with a private bank said. At 0920 IST, the triparty repo was at RBI's standing deposit facility rate of 6.25%.

On Friday, the liquidity surplus in the banking system was INR 2.81 trillion, slightly down from INR 2.88 trillion on Thursday, according to RBI data. The surplus liquidity widened last week on account of inflows from the government's month-end spending, dealers said. Dealers expect the surplus liquidity to remain in a comfortable range this week owing to major outflows except for the tax deducted at source and excise duty payment. Market participants expect the tax outflows to be around INR 600 billion.

On Friday, banks maintained INR 9.93 trillion with the RBI, against INR 9.86 trillion on Thursday. The average daily cash reserve requirement for the last fortnight that ended on Friday was INR 10.05 trillion.

Following are the other highlights:

* The weighted average call rate was 6.50%, against 6.09% on Saturday.

* The weighted average rate for triparty repo was 6.25%, unchanged from Saturday.

* Reversal of the standing deposit facility added INR 1.31 trillion to the banking system, while reversal of the marginal standing facility drained INR 7.58 billion.

* 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 Saji George Titus

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