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Informist, Tuesday, Oct. 8, 2024

By Vidhushi RajPurohit

MUMBAI - The interbank call money rate ended below the Reserve Bank of India's repo rate of 6.50% due to low demand for funds from banks owing to surplus liquidity in the banking system, dealers said. The one-day call money rate ended at 6.40%, against 5.75% on Monday.

On Monday, outflows for tax deducted at source and excise duty payments led to reduction of surplus liquidity, dealers said. The surplus liquidity on Monday was INR 1.57 trillion, down from INR 2.02 trillion on Sunday. Market participants said that in addition to the tax outflows, payment for the weekly gilts auction must have also weighted on surplus liquidity and brought it down.

On Monday, payment for gilts auctioned on Friday resulted in an outflow of INR 390 billion. "The outflow for the TDS and excise duty payments might have been in the range of INR 400 billion to INR 600 billion," a dealer with a state-owned bank said.

The interbank borrowing rates were below the RBI's repo rate of 6.50% for most of the trading session. The triparty repo rate stayed in the range of 6.11-6.26%. The weighted average call was at 6.42%. Hence, as expected by market participants, the RBI announced a three-day, INR 500-billion variable rate reverse repo auction. The auction saw a tepid response from banks as they parked only INR 93.98 billion at the cut-off rate of 6.49%. 

"Banks did not put higher bids because the reversal of the auction is three days later on Friday and banks will not be able to deploy that amount during the weekend," a dealer with another state-owned bank said. Another reason cited by dealers was the amount already parked at the previously held variable rate reverse repo auctions in the current fortnight. "So far, banks have parked around INR 700 billion with the RBI, now the surplus has also narrowed down, so banks chose to keep funds with them."  

On Monday, banks maintained INR 10.27 trillion with the RBI, against INR 10.56 trillion on Sunday. The average daily cash reserve requirement for the current fortnight is INR 10.02 trillion. 

The following are the other highlights:

* The weighted average call rate was 6.42%, against 6.43% on Monday.

* The weighted average rate for triparty repo was 6.21%, against 6.20% on Monday.

* Reversal of the standing deposit facility added INR 894.52 billion to the banking system, while reversal of the marginal standing facility drained INR 27.30 billion.

OUTLOOK

* On Wednesday, 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

6.40%--Tuesday's close for one-day loans

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

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below RBI's repo rate; low demand from banks on lack of outflows

MUMBAI – The interbank call money rate was at the Reserve Bank of India's repo rate of 6.50% on Tuesday, owing to low demand for funds from banks due to lack of any significant outflows during the day, dealers said. At 0915 IST, the one-day call money rate was at 6.50%, against 5.75% at close on Monday.

The surplus liquidity on Monday was at INR 1.57 trillion, down from INR 2.02 trillion on Sunday. The surplus liquidity narrowed on account of outflows for tax deducted at source and excise duty payments, dealers said. "Around INR 550 billion might have been the total tax outflows on Monday," a dealer with a state-owned bank said. "The TDS and excise duty payment is largely done, banks are not expecting any significant outflow during the day." 

Market participants are of the view that the money market rates will likely remain below the RBI's repo rate for the majority of the day. "The surplus liquidity has narrowed, but banks do not have any outflows for the day to borrow aggressively at the money market," a dealer with a private bank said. Dealers said that if the rates are below the RBI's standing deposit facility of 6.25%, then the RBI might be prompted to announce a short-tenure variable rate reverse repo auction.

"The probability of a VRRR is quite low, but if the money market rates are too low, then there might come an announcement from the RBI's side," a dealer with another state-owned bank said. At Monday's four-day, INR 750 billion variable rate reverse repo auction, banks parked a total of INR 368.25 billion.

Amid the reduction in surplus liquidity, banks lowered the amount maintained with the RBI as cash reserves. On Monday, banks maintained INR 10.27 trillion with the RBI, against INR 10.56 trillion on Sunday. The average daily cash reserve requirement for the current fortnight is INR 10.02 trillion.

Following are the other highlights:

* The weighted average call rate was 6.50%, against 6.43% on Monday.

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

* Reversal of the standing deposit facility added INR 894.52 billion to the banking system, while reversal of the marginal standing facility drained INR 27.30 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 Avishek Dutta

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