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Informist, Friday, Oct. 18, 2024

By Vidhushi RajPurohit

MUMBAI - The interbank call money rate Friday ended at the Reserve Bank of India's repo rate of 6.50% on demand from some banks towards the end to meet reserve requirements, dealers said. The three-day call money rate ended at 6.50%, against 5.75% on Thursday for one-day loans.

Interbank borrowing rates were below the RBI's repo rate for most of the trading hours due to comfortable surplus liquidity, dealers said. On Thursday, surplus liquidity in the banking system was at INR 1.75 trillion, against INR 1.90 trillion on Wednesday, RBI data showed. "Banks did not have major scheduled outflows and liquidity is also in a comfortable range, so the (money market) rates were in a moderate range," a dealer with a private bank said. Reversal of two variable rate reverse repo auctions resulted in an inflow of INR 683.45 billion into the banking system, and INR 249.34 billion of inflows on account of buyback of gilts by the government also entered the banking system.

The RBI conducted two variable rate reverse repo auctions during the day. At the 13-day, INR 1 trillion variable rate reverse repo auction, banks parked only INR 200.73 billion. Dealers said the tepid bids were as expected owing to the long-tenure of the auction. "Locking up funds ahead of tax outflows, and that too for an entire fortnight is a risky bet and hence the participation was low," a dealer with a state-owned bank said. Market participants expect the outflows for the goods and services tax payment to leave the banking system on Monday. The auction is due for reversal on Oct. 31. 

After the lacklustre subscription at the 13-day auction, the RBI conducted a three-day, INR 1.25 billion variable rate reverse repo auction. Banks parked INR 547.55 billion at the auction at a cut-off rate of 6.49%. The short-tenure of the auction was the reason cited by the market participants for higher bids. "The auction will reverse on the day of tax outflows, so banks had less uncertainty with respect to their funding requirements," a dealer with a state-owned bank said.

The average daily cash reserve requirement for the fortnight ending Friday is INR 10.02 trillion. On Thursday, banks' cash balance with the RBI stood at INR 9.85 trillion, against INR 9.76 trillion rupees on Wednesday. So far, in the current fortnight, banks have maintained an average of INR 10.05 trillion.

The following are the other highlights:

* The weighted average call rate was 6.47%, as against 6.43% on Thursday.

* The weighted average rate for triparty repo was 6.29%, as compared to 6.28% on Thursday.

* Reversal of the standing deposit facility added INR 829.25 billion to the banking system, while reversal of the marginal standing facility drained INR 57.17 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

6.50%--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 on demand from banks in early trade

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.

On Thursday, surplus liquidity in the banking system was at INR 1.75 trillion, against INR 1.90 trillion on Wednesday. Dealers expect the surplus liquidity to narrow in the next fortnight, starting Saturday, on account of outflows for goods and services tax payment. "The surplus in the next fortnight might narrow and be around the range of INR 700 billion – INR 800 billion," a dealer with a private bank said.

Market participants expect the tax outflow to be around INR 800 billion. "Major tax outflow will likely start from Monday, and some minor payment might be there on Tuesday as well," a dealer with a state-owned bank said. "However, there is a high probability that the surplus liquidity might again pick up when the government's month-end spending starts." 

Market participants expect interbank borrowing rates to ease later in the day, citing high surplus liquidity. "There will be some activity in the money market as it is a reporting Friday, but there are no scheduled outflows lined up, so the rate will likely trade below RBI's repo rate," a dealer with another state-owned bank said.

Post market hours on Thursday, the RBI announced a 13-day variable rate reverse repo auction for INR 1.00 trillion. Despite surplus liquidity, dealers do not expect banks to participate aggressively at the auction. Market participants expect bids at Friday's auction to be around INR 400 billion. "Liquidity is in a comfortable range, but banks will need to factor in the tax outflows," a dealer with a private bank said. "There are festivals lined up in the coming weeks, so banks will need funds to account for that as well." The 13-day variable rate reverse repo auction is due for reversal on Oct. 31.

Reversal of two variable rate reverse repo auctions will result in an inflow of INR 683.45 billion into the banking system, and INR 249.34 billion of inflows on account of buyback of gilts by the government will boost liquidity today. Dealers do not expect any other significant inflow during the day.

On Thursday, banks' cash balance with the RBI stood at INR 9.85 trillion, against INR 9.76 trillion rupees on Wednesday. The average daily cash reserve requirement for this fortnight is INR 10.02 trillion.  

The following are the other highlights:

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

* The weighted average rate for triparty repo was 6.25%, as compared to 6.28% on Thursday.

* Reversal of the standing deposit facility will add INR 829.25 billion to the banking system, while reversal of the marginal standing facility will drain INR 57.17 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 Vidhi Verma

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