More Stories

Informist, Thursday, Nov. 7, 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 Thursday 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 5.75%, against 6.35% on Wednesday.

On Thursday, the RBI conducted two variable rate reverse repo auctions as the high surplus liquidity kept the money market rates around the RBI's standing deposit facility rate for most part of the day, dealers said. "The surplus liquidity is too high for the banks to borrow funds in the money market, so it is natural for the rates to be low and then the RBI to intervene," a dealer with a private bank said. The surplus liquidity in the banking system was at INR 2.77 trillion, slightly lower than INR 2.84 trillion on Tuesday, data from the RBI showed.

At the first four-day variable rate reverse repo auction, banks parked INR 1.03 trillion against a notified amount of INR 1.75 trillion. Despite the hefty bids in the four-day auction, the RBI conducted another overnight, INR 750-billion variable rate reverse repo auction. Dealers attributed the announcement of the second auction to the scheduled inflows from the reversal of three variable rate reverse repo auctions which amounted to INR 1.73 trillion. Moreover, the redemption of the floating rate bond 2024 also brought in an inflow of INR 116.82 billion, including the coupon amount.

"The liquidity was already high, and then the reversals were there, so the RBI had to step in to manage the surplus," a dealer with another private bank said. At the overnight auction, banks parked INR 512.30 billion.

"There was nothing significant on the outflow's side apart from the TDS (tax deducted at source) payment and the money market rates were also low, so banks had an opportunity to make arbitrage profit by parking their funds with the RBI at the auctions," a dealer with a state-owned bank said. The outflow for tax deducted at source and excise duty payment likely amounted to INR 500 billion, dealers said.

On Wednesday, banks' cash balance with the RBI was INR 10.15 trillion, slightly below INR 10.22 trillion on Tuesday. 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 6.42%, as against 6.34% on Wednesday.
* The weighted average rate for triparty repo was 6.23%, as against 6.22% on Wednesday.
* Reversal of the standing deposit facility added INR 907.13 billion to the banking system, while reversal of the marginal standing facility drained INR 15.03 billion.

OUTLOOK

* On Friday, the three-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

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

6.40%--Thursday's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below RBI repo rate as liquidity ample; RBI to hold 4-day VRRR

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 remained high, dealers said. At 0920 IST, the one-day call money rate was at 6.40%, against 6.35% on Wednesday.

On Wednesday, liquidity surplus in the banking system was at INR 2.77 trillion, slightly lower than INR 2.84 trillion on Tuesday, data from the RBI showed.  Market participants are of the view that interbank borrowing rates might trade around the RBI's repo rate during the day and ease towards close. "Surplus liquidity is still high and other than the tax outflows there is nothing major scheduled for banks to demand funds," a dealer with a state-owned bank said. Thursday, outflows for tax deducted at source and excise duty payment are due. Market participants expect the outflows to the tune of INR 500 billion–INR 600 billion.

Post market hours on Wednesday, the RBI announced a four-day variable rate reverse repo auction for a notified amount of INR 1.75 trillion. The auction is scheduled for Thursday at 1000-1030 IST. Tepid response at the RBI's overnight reverse repo auction on Wednesday and the long tenure of the upcoming auction suggests that banks may remain wary of parking funds with the RBI today as well, dealers said. At Wednesday's overnight variable rate reverse repo auction, banks only parked INR 282.65 billion, against the notified amount of INR 1.25 trillion.

"Locking up funds for a four-day tenure creates a bit of uncertainty for banks, so banks might not bid aggressively at the auction," a dealer with another state-owned bank said. Market participants expect the subscription for the auction to be around INR 500 billion. However, dealers also expect the RBI to conduct another overnight variable rate reverse repo auction if the subscription for the 4-day auction is too low and money market rates slip below the RBI's standing deposit facility of 6.25%. 

On Wednesday, banks' cash balance with the RBI was INR 10.15 trillion, slightly below INR 10.22 trillion on Tuesday. 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 6.48%, as against 6.32% on Wednesday.
* The weighted average rate for triparty repo was 6.20%, as against 6.22% on Wednesday.
* Reversal of the standing deposit facility will add INR 907.13 billion to the banking system, while reversal of the marginal standing facility will drain INR 15.03 billion.
* The call rate is seen within the range of 6.20-6.60% during the day.

End

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

Edited by Ashish Shirke

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.