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Informist, Wednesday, Oct. 23, 2024

By Vidhushi RajPurohit

MUMBAI - The interbank call money rate ended above the Reserve Bank of India's repo rate of 6.50% on Wednesday due to demand for funds from banks amid narrowed surplus liquidity on account of goods and services tax outflows, dealers said. The one-day call money rate ended at 6.70%, against 5.75% on Tuesday.

The fall in liquidity surplus kept the interbank borrowing rates around RBI's repo rate of 6.50% during the day. "Monday major tax outflows were there, and it brought down the surplus liquidity," a dealer with a state-owned bank said. "Tuesday too there were some minor outflows, but mostly banks were demanding funds to keep up with the reserve requirements." The surplus liquidity on Tuesday was at INR 737.75 billion, against INR 794.88 billion Monday. The banking system liquidity was in a surplus of INR 1.47 trillion to INR 2.09 trillion in the previous week.

Some market participants also said the RBI's dollar sales in the foreign exchange market weighed on liquidity. According to dealers, the RBI is selling dollars to prevent the rupee from depreciating. Despite the intervention, the rupee closed at a lifetime low of INR 84.0800 a dollar on Wednesday. "In the coming days, the impact of RBI's selling of the greenback will be more visible in the triparty repo market," a dealer with a private bank said. The weighted average triparty repo rate was at 6.69% on Wednesday compared with the weighted average call rate of 6.75%.

Dealers expect the money market rates to stay elevated for the next few days. "The rates will likely not ease until the inflows from the government's month-end spending lift the surplus," a dealer with a state-owned bank said.

Amid the reduced surplus, banks are maintaining lower than the required reserves with the RBI. The average daily cash reserve requirement for the fortnight that began Saturday is INR 10.17 trillion. On Tuesday, banks maintained cash reserves of INR 10.02 trillion with the RBI. So far, in the current fortnight, banks have maintained an average amount of INR 10.02 trillion.

Following are the other highlights:

* The weighted average call rate was 6.75%, against 6.65% on Tuesday.

* The weighted average rate for triparty repo was 6.69%, against 6.66% on Tuesday.

* Reversal of the standing deposit facility added INR 672.34 billion to the banking system, while reversal of the marginal standing facility drained INR 26.03 billion.

OUTLOOK

* On Thursday, the one-day call money rate may open around the RBI's repo rate of 6.50% because of the 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

6.70%--Wednesday's close for one-day loans

6.75%--Wednesday's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: At MSF rate on demand for funds from banks after GST outflows 

MUMBAI – The interbank call money rate was at the Reserve Bank of India's marginal standing facility rate of 6.75% on Wednesday, owing to high demand for funds from banks after goods and services tax outflows, dealers said. At 0920 IST, the one-day call money rate was at 6.75%, against 5.75% at close on Tuesday.

Dealers expect the interbank borrowing rates to remain elevated during the day, owing to the reduced surplus liquidity. "The triparty repo rate might trade around RBI's MSF rate as there will be heightened demand for funds as there are no inflows and the liquidity had narrowed after tax outflows," a dealer with a private bank said. The surplus liquidity on Tuesday was at INR 737.75 billion, against INR 794.88 billion Monday. The banking system liquidity was in a surplus of INR 1.47 trillion to INR 2.09 trillion in the previous week.

The RBI's intervention in the foreign exchange market as it continues to sell dollars to cushion the rupee from depreciating could also dampen the surplus rupee liquidity amount, dealers said. On Tuesday, the rupee closed at an all-time low of INR 84.0770 against the greenback and RBI sold around $500 million to keep it from depreciating further. Market participants expect further intervention from the RBI and that could reduce the surplus liquidity and subsequently hike money market rates.

During the day, outflows for state government securities auctioned on Tuesday will result in an outflow of INR 81 billion. Market participants anticipate the inflow from the government's month-end spending to boost the surplus liquidity. "The inflows from the salary and pension payments will likely start from Friday or Monday," a dealer with a state-owned bank said.

Banks increased the cash reserves maintained with the RBI. On Tuesday, banks maintained cash reserves of INR 10.02 trillion with the RBI, against INR 9.92 trillion on Monday. The average daily cash reserve requirement for the fortnight that started on Saturday is INR 10.16 trillion. 

Following are the other highlights:

* The weighted average call rate was 6.75%, against 6.65% on Tuesday.

* The weighted average rate for triparty repo was 6.69%, against 6.66% on Tuesday.

* Reversal of the standing deposit facility added INR 672.34 billion to the banking system, while reversal of the marginal standing facility drained INR 26.03 billion.

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

End

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

Edited by Saji George Titus

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