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Informist, Thursday, Oct. 24, 2024

By Vidhushi RajPurohit

MUMBAI - The interbank call money rate ended above the Reserve Bank of India's repo rate of 6.50% on Thursday due to demand for funds from banks after goods and services tax outflows, dealers said. The one-day call money rate ended at 6.65%, against 6.70% on Wednesday.

The money market rates traded in a high range as banks borrowed funds to make up for the fall in the surplus liquidity post the tax outflows, dealers said. The outflows for goods and tax services payment started on Monday, and it drained around INR 800 billion from the banking system, according to dealers. "There are no scheduled inflows in the coming days other than the government's month-end spending which will likely start from Monday," a dealer with a private bank said. "So banks are relying on the money market to finance the short-term requirements." The surplus liquidity Wednesday narrowed down to INR 574.28 billion, from INR 737.75 billion on Tuesday.

Market participants also attributed the high interbank borrowing rates to the additional funding needed for the festive time. "There are festivals lined up starting from next week so that puts additional funding burden on banks," a dealer with another private bank said. Some dealers said if the month-end spending does not provide the required boost to surplus liquidity, then there is a high likelihood for the money market rates to continue to trade in a high range. The call money rate traded in the range of 5.10-6.85% and for the triparty repo rate the range was 6.37-6.78%.

Banks maintained more than the required cash reserve with the RBI to make up for the low reserves maintained so far in the current fortnight. On Wednesday, banks maintained cash reserves of INR 10.18 trillion with the RBI, against INR 10.02 trillion on Tuesday. The average daily cash reserve requirement for the current fortnight is INR 10.16 trillion. "Banks were not in a position to maintain adequate reserves with the RBI this fortnight owing to the tax outflows, but now they will try to maintain high reserves so that when the festive outflows start at the end of the fortnight it does put additional burden on banks," a dealer with a state-owned bank said.

Following are the other highlights:

* The weighted average call rate was 6.68%, against 6.65% on Wednesday.

* The weighted average rate for triparty repo was 6.66%, unchanged from Wednesday.

* Reversal of the standing deposit facility added INR 541.12 billion to the banking system, while reversal of the marginal standing facility drained INR 46.20 billion.

OUTLOOK

* On Friday, the three-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

6.65%--Thursday's close for one-day loans

6.70%--Thursday's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo rate on demand for funds from banks post GST outflows

MUMBAI – The interbank call money rate was around the Reserve Bank of India's marginal standing facility rate of 6.75% on Thursday, owing to high demand for funds from banks after goods and services tax outflows, dealers said. At 0930 IST, the one-day call money rate was at 6.70%, unchanged from the close on Wednesday.

The surplus liquidity Wednesday narrowed down to INR 574.28 billion, from INR 737.75 billion on Tuesday. "The surplus liquidity was reduced on account of some regular outflows," a dealer with a state-owned bank said. "Banks also deployed the surplus funds towards maintaining higher reserves with the RBI." Dealers also cited some staggered outflows from remaining payment for goods and services tax as the reason for the reduced surplus.

Banks increased the cash reserves maintained with the RBI. On Wednesday, banks maintained cash reserves of INR 10.18 trillion with the RBI, against INR 10.02 trillion on Tuesday. The average daily cash reserve requirement for the fortnight that started on Saturday is INR 10.16 trillion.

During the day, market participants expect a higher range for the interbank borrowing rates. "The call money rate might trade above the RBI's repo rate as there is no inflow scheduled for the day and banks will need funds to maintain the reserve requirements with the RBI," a dealer with a private bank said. On Wednesday, the weighted average call money rate was at RBI's marginal standing facility rate of 6.75%. The RBI's intervention in the foreign exchange market by selling dollars to cushion the rupee from depreciating also might lead to higher money market rates, dealers said. The rupee closed at a record closing low of 84.0800 on Wednesday.

According to dealers, money market rates might ease next week when the inflow from government's month-end spending starts. "The inflow from the salary and pension payment will likely start from Monday," a dealer with a state-owned bank said. "However, if the inflow is not a major amount then the rates might stay elevated because banks will have additional requirement for funds to finance the festive needs."

Following are the other highlights:

* The weighted average call rate was 6.73%, against 6.65% on Wednesday.

* The weighted average rate for triparty repo was 6.68%, against 6.66% on Wednesday.

* Reversal of the standing deposit facility added INR 541.12 billion to the banking system, while reversal of the marginal standing facility drained INR 46.20 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 Vidhi Verma

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