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Informist, Friday, Nov. 8, 2024

By Vidhushi RajPurohit

MUMBAI - The interbank call money rate ended slightly above the Reserve Bank of India's repo rate of 6.50% Friday on demand for funds from some banks towards the end of the session, dealers said. The three-day call money rate ended at 6.55% as against 5.75% for one-day loans on Thursday, with the weighted average rate at 6.44%, marginally higher than 6.42% on Thursday.

After opening at the repo rate of 6.50%, the call rate was around the RBI's Standing Deposit Facility rate of 6.25% for much of the day, with dealers attributing the fall to lack of significant outflows and presence of adequate funds with the banks. Interbank borrowing rates have traded below the RBI's repo rate of 6.50% for the entire week as surplus liquidity in the banking system has consistently remained above INR 2 trillion. Thursday, the surplus liquidity in the banking system was INR 2.45 trillion, slightly lower than INR 2.77 trillion on Wednesday, data from the RBI showed.

Low money market rates and ample funds with banks resulted in over-subscription at Friday's three-day, variable rate reverse repo auction for INR 500 billion. "Banks have comfortable funds with them and the auction will be reversed on Monday, which is the next working day, so that led to the high subscription amount," a dealer with a state-owned bank said. Banks put in bids amounting to INR 585.25 billion, with the RBI accepting offers worth INR 500.13 billion, with the cut-off rate being 6.49%.

Market participants expect surplus liquidity to remain elevated next week as well due to lack of major outflows. "There is some redemption inflow lined up and adding to that there are no significant outflows to bring down the surplus," a dealer with another state-owned bank said. With the 9.15%, 2024 government bond maturing on Thursday, INR 650.80 billion is set to flow into the banking system next week. Dealers expect the RBI to continue with its regular variable rate reverse repo auctions to manage the excess liquidity.

On Thursday, banks' cash balance with the RBI was INR 10.13 trillion, slightly below INR 10.15 trillion on Wednesday. The average daily cash reserve requirement for the current fortnight is INR 10.12 trillion. So far, in the current fortnight, banks have maintained an average amount of INR 10.29 trillion with the RBI.

The following are the other highlights:
* The weighted average call rate was 6.44%, as against 6.42% on Thursday.
* The weighted average rate for triparty repo was 6.37%, as against 6.23% on Thursday.
* Reversal of the standing deposit facility added INR 772.43 billion to the banking system, while reversal of the marginal standing facility will drain INR 16.85 billion.

OUTLOOK

* Money markets are shut on Saturday.

* On Monday, 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

6.55%--Friday's close for three-day loans

6.50%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: At RBI's repo rate on demand from banks in early trade

MUMBAI – The interbank call money rate was at the Reserve Bank of India's repo rate of 6.50%, owing to demand for funds from banks to meet reserve requirements in early trade and a slight decline in surplus liquidity, dealers said. At 0920 IST, the three-day call money rate was at 6.50%, against 5.75% for one-day call on Thursday.

On Thursday, the liquidity surplus in the banking system was at INR 2.45 trillion, slightly lower than INR 2.77 trillion on Wednesday, data from the RBI showed. Dealers said the outflows for tax deducted at source and funds parked with RBI under its liquidity management operations toned down the surplus slightly.

Market participants expect the surplus liquidity to remain high next week too, owing to scheduled inflows. "There are redemption of bonds due throughout the following week, which will keep the surplus liquidity afloat," a dealer with a state-owned bank said. "The RBI will likely continue to conduct regular VRRR auctions to manage the excess surplus." 

After market hours on Thursday, the RBI announced a three-day, INR 500-billion variable rate reverse repo auction Friday. Market participants expect banks to park around INR 400 billion at the auction. "Banks have ample funds with them and the triparty repo rate is also trading low, so banks might bid a higher amount at the auction," a dealer with a private bank said. At 0915 IST, the triparty repo rate was at 6.30%.  

This week, surplus liquidity in the banking system consistently remained above INR 2.50 trillion due to month-end spending by the government and large redemption of gilts. The high surplus liquidity and lack of significant outflows kept money market activity thin during the week. Owing to these reasons, the RBI conducted variable rate reverse repo auctions throughout the week. Till Thursday, banks ended up parking a cumulative INR 2.24 trillion at the auctions. Of this amount, INR 1.73 trillion was reversed on Thursday. During the day, the reversal of Thursday's overnight variable rate reverse repo auction will return INR 512.30 billion to the banking system. 

On Thursday, banks' cash balance with the RBI was INR 10.13 trillion, slightly below INR 10.15 trillion on Wednesday. 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 6.50%, as against 6.42% on Thursday.
* The weighted average rate for triparty repo was 6.32%, as against 6.23% on Thursday.
* Reversal of the standing deposit facility will add INR 772.43 billion to the banking system, while reversal of the marginal standing facility will drain INR 16.85 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 Vandana Hingorani

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