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Informist, Wednesday, Nov. 6, 2024

By Vidhushi RajPurohit

MUMBAI - The interbank call money rate ended slightly below the Reserve Bank of India's repo rate of 6.50% due to low demand for funds from banks amid high liquidity in the banking system, dealers said. The one-day call money rate ended at 6.35%, against 5.95% on Tuesday.

On Tuesday, the liquidity surplus increased slightly to INR 2.84 trillion, up from INR 2.76 trillion on Monday, according to RBI data. The high surplus liquidity and lack of significant outflows kept money market activity thin during the day. "Inflows from the month-end spending has provided the (banking) system with more than adequate surplus funds, so the demand in the money market has been low since the past few days," a dealer with a private bank said. 

Even though the RBI conducted a variable rate reverse repo auction for the third consecutive day, money market rates remained low as banks were reluctant to keep any more funds tied up with the central bank. In the previous two variable rate reverse repo auctions conducted by the RBI, banks had parked a total sum of INR 1.45 trillion. Wednesday's variable rate reverse repo auction was for an overnight tenure and for a notified amount of INR 750 billion. Banks' participation at the auction was tepid, and they parked INR 282.65 billion with cut-off rate set at 6.49%.

Of late, most of the RBI's variable rate reverse repo auctions had their reversal dates falling on Fridays. But all the three auctions conducted this week have Thursday as the day of reversal. "It is likely that RBI did not want to keep the reversal date after the day of the tax outflows, as banks would not have preferred to lock up their funds for a tenure which extended beyond that day," a dealer with a private bank said. The outflow for tax deducted at source and excise duty payment is scheduled for Thursday. Around INR 500 billion is estimated to be the total outflow on account of tax payments in coming days, dealers said.

On Tuesday, banks' cash balance with the RBI was INR 10.22 trillion, slightly below INR 10.27 trillion on Monday. The average daily cash reserve requirement for the current fortnight is INR 10.12 trillion.

The following are the other highlights:

* The weighted average call rate was 6.34%, against 6.31% on Tuesday.

* The weighted average rate for triparty repo was 6.22%, against 6.10% on Tuesday.

* Reversal of the standing deposit facility added INR 1.26 trillion to the banking system, while reversal of the marginal standing facility drained INR 16.51 billion.

OUTLOOK

* On Thursday, 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 the reserve requirements.

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

CALL RATE

6.35%--Wednesday's close for one-day loans

6.35%--Wednesday's open for one-day loans

5.95%--Tuesday's close for one-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below repo rate as demand for funds low due to surplus liquidity 

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 6.50%, owing to low demand for funds from banks as surplus liquidity in the banking system remains high, dealers said. At 0930 IST, the one-day call money rate was at 6.40%, against 5.95% on Tuesday.

During the day, the interbank borrowing rates are likely to remain at or below the repo rate, and may drift towards the RBI's standing deposit facility rate. "Banks have adequate funds with them, and no outflows are scheduled for the day," a dealer at a state-owned bank said. Outflow of INR 94.67 billion is lined up Wednesday for the payment of state bonds auctioned on Tuesday, but the amount is not significant enough to impact surplus liquidity, dealers said. On Tuesday, the liquidity surplus in the banking system stood at INR 2.84 trillion, up from INR 2.76 trillion on Monday, data from the RBI showed. 

"The surplus liquidity will remain in the current range, it is usual for the surplus to peak due to the spending inflows," a dealer with a private bank said. "Even when the outflow from the excise and TDS (tax deducted at source) payment starts, it will not impact the surplus much as the outflow will not be significant amount." Around INR 500 billion is estimated to be the total outflow on account of tax payment in coming days, dealers said.

Market participants expect some minor outflows for tax deducted at source and excise duty payment to leave the banking system during the day. "Around 20-30% of the tax outflows might be there today (Wednesday), but the major chunk will leave the (banking) system tomorrow (Thursday)," a dealer with a private bank said.

Market participants expect the RBI to announce an overnight variable rate reverse repo auction today due to the high liquidity surplus. "If the interbank borrowing rates trade below the RBI's repo rate, it might lead the central bank to conduct an overnight VRRR auction," a dealer at a private bank said. At 0920 IST, the triparty repo rate was at 6.20%, below the RBI's repo rate of 6.25%.

On Tuesday, banks' cash balance with the RBI was INR 10.22 trillion, slightly below INR 10.27 trillion on Monday. The average daily cash reserve requirement for the current fortnight is INR 10.12 trillion.

The following are the other highlights:
* The weighted average call rate was 6.55%, as against 6.31% on Tuesday.
* The weighted average rate for triparty repo was 6.21%, as against 6.10% on Tuesday.
* Reversal of the standing deposit facility will add INR 1.26 trillion to the banking system, while reversal of the marginal standing facility will drain INR 16.51 billion.
* The call rate is seen within the range of 6.20-6.60% during the day. (Vidhushi RajPurohit)

End

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

Edited by Akul Nishant Akhoury

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