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Informist, Tuesday, Oct. 22, 2024

By Vidhushi RajPurohit

MUMBAI - The interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 6.25% on Tuesday due to an ease in demand for funds from banks towards the end of trade, dealers said. The one-day call money rate ended at 5.75%, unchanged from Monday.

During the day, the money market rates were around or above the RBI's repo rate of 6.50% owing to demand for funds from banks on account of outflows for goods and services tax payment, dealers said. "Though the major outflow was yesterday (Monday), some remaining tax outflow was there, but the rates still spiked because the surplus liquidity has narrowed down," a dealer with a state-owned bank said. The weighted average triparty repo rate was at 6.66% and for the call money market, the weighted average rate was at 6.65%.

The surplus liquidity on Monday was at INR 794.88 billion, sharply down from INR 1.52 trillion on Sunday, according to RBI data. Dealers expect the interbank borrowing rates to trade higher for the next few days, until the inflow from the government's month-ending spending starts. "If the triparty repo rate is too high in the upcoming days then the RBI might even conduct a variable rate repo auction," a dealer with a private bank said.  

Dealers also expect the money market rates to trade higher because of the funding needed for the upcoming festivals. "There are festivals lined up and, additionally, banks need to maintain cash reserves with the RBI," a dealer with another private bank said. Market participants also expect the banks to be in a tight position in terms of meeting their funding requirements if the month-end spending does not provide the required boost to the surplus liquidity. 

The average daily cash reserve requirement for the fortnight that began Saturday is INR 10.17 trillion. On Monday, banks' cash balance with the RBI was INR 9.92 trillion, against INR 10.04 trillion on Sunday. 

Following are the other highlights:

* The weighted average call rate was 6.65%, against 6.50% on Monday.

* The weighted average rate for triparty repo was 6.66%, against 6.46% on Monday.

* Reversal of the standing deposit facility added INR 887.75 billion to the banking system, while reversal of the marginal standing facility drained INR 185.97 billion.

OUTLOOK

* On Wednesday, the one-day call money rate may open around the RBI's repo rate of 6.50% because of demand for funds from banks in early trade for reserve requirements.

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

CALL RATE

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

6.55%--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: Above RBI's repo rate; surplus liquidity down on GST outflows

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% on Tuesday, owing to demand for funds from banks amid narrowing surplus liquidity in the banking system on account of tax outflows, dealers said. At 0920 IST, the one-day call money rate was at 6.55%, against 5.75% at close on Monday.

On Monday, outflows for the payment of goods and services tax resulted in narrowing of surplus liquidity. The liquidity in the banking system was in a surplus of INR 794.88 billion Monday, sharply down from INR 1.52 trillion on Sunday, according to RBI data. Dealers expect minor tax outflows to take place during the day as well. "Since the past two months, the payment for GST has been seen happening in tranches of two days," a dealer with a private bank said. "Major outflows have left the banking sytem on Monday, so payment of around INR 200 billion might be today's (Tuesday's) amount." No other outflows are lined up for the day. 

Owing to the reduction of surplus liquidity, dealers expect the interbank borrowing rates to trade higher. "The call money rate might even go up to RBI's marginal standing facility rate (6.75%)," a dealer with a state-owned bank said. At 0920 IST, the triparty repo rate was at 6.58%. Some market participants also expect the rates to ease later in the day when the cash reserve requirements are met.

Banks lowered the cash reserve maintained with the RBI amid a narrowed liquidity surplus. On Monday, banks maintained cash reserves of INR 9.92 trillion with the RBI, against INR 10.02 trillion on Sunday. The average daily cash reserve requirement for the fortnight that started on Saturday is INR 10.16 trillion. "Banks will start maintaining higher reserves with the RBI when the inflows from salary and pension payments start," a dealer with a state-owned bank said. 

Market participants expect the inflows from the government's month-end spending to boost the surplus liquidity. "The inflows will likely start around Friday," a dealer with a state-owned bank said.

Following are the other highlights:

* The weighted average call rate was 6.55%, against 6.50% on Monday.

* The weighted average rate for triparty repo was 6.58%, against 6.46% on Monday.

* Reversal of the standing deposit facility added INR 887.75 billion to the banking system, while reversal of the marginal standing facility drained INR 185.97 billion.

* During the day the call rate is seen in a range of 6.20-6.70%. (Vidhushi RajPurohit)

End

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

Edited by Vandana Hingorani

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