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Informist, Monday, Nov. 11, 2024

By Vidhushi RajPurohit

MUMBAI - The interbank call money rate ended sharply below the Reserve Bank of India's standing deposit facility rate of 6.25% Monday on low demand for funds from banks due to high surplus liquidity, dealers said. The one-day call money rate ended at 5.50% against 6.55% for three-day loans on Friday, with the weighted average rate at 6.45%, around the same level of 6.44% on Friday.

Money market rates traded around the RBI's repo rate during the day and eased later as the banks had ample surplus funds, dealers said. Surplus liquidity in the banking system remained above INR 2.00 trillion. Sunday, the systemic liquidity was in surplus of INR 2.26 trillion, against INR 2.16 trillion on Friday. Market participants expect the surplus to remain near current levels, citing lack of significant outflows in the near term. 

Despite the high surplus, Monday's variable rate reverse repo auction saw low participation from banks. At the RBI's three-day, INR 1.75 trillion variable rate reverse repo auction, banks parked only INR 619.60 billion. Market participants said that the auction was under-subscribed most likely because its tenor was too long for the market's liking, and the notified amount was high. "If it was an overnight auction, the participation would have been higher as there is reduced uncertainty there," a dealer with a private bank said. 

During the day, inflows amounting to INR 1.60 trillion returned to the banking system from the reversal of two variable rate reverse repo auctions conducted by the RBI last week, and the coupon and redemption payment of the state-bonds' auction. With the 9.15%, 2024 government bond maturing on Thursday, INR 650.80 billion is set to flow into the banking system this week. Dealers expect the RBI to continue with its regular variable rate reverse repo auctions to manage the excess liquidity.

On Sunday, banks maintained INR 9.83 trillion with the RBI as cash reserves, against INR 9.93 trillion maintained on Friday. The average daily cash reserve requirement for the current fortnight ending on Friday is INR 10.12 trillion and, till Sunday, banks maintained an average of INR 10.09 trillion.  

Following are the other highlights:

* The weighted average call rate was 6.45%, against 6.44% on Friday.

* The weighted average rate for triparty repo was 6.29%, against 6.37% on Friday.

* Reversal of the standing deposit facility will add INR 533.23 billion to the banking system, while reversal of the marginal standing facility will drain INR 41.47 billion.

OUTLOOK

* On Tuesday, 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

5.50%--Monday's close for one-day loans

6.45%--Monday's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Below RBI repo rate as bks' demand low on comfortable liquidity

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 6.50% on Monday due to low demand for funds from banks on account of high surplus liquidity, dealers said. At 1040 IST, the one-day call money rate was at 6.30%, against 6.55% at close on Friday for three-day loans. 

The RBI conducted a three-day, 1.75 trillion variable rate reverse repo auction at 1000-1030 IST. Market participants expect the subscription to be around INR 600 billion, according to an Informist poll. "Three-day is a long tenure to park too much funds with the RBI, so even if the surplus is there in the (banking) system, banks may wait for an overnight VRRR to deploy their funds," a dealer with a private bank said. Dealers expect the RBI to step in with an overnight variable rate reverse repo auction if the interbank borrowing rates trade below the RBI's standing deposit facility rate of 6.25%. At 1040 IST, the tri-party repo rate was at 6.37%. 

On Friday, the surplus liquidity in the banking system was at INR 2.16 trillion, down from INR 2.44 trillion on Thursday. Market participants expect the surplus liquidity to remain around the current range, citing lack of major outflows. "There are no scheduled outflows during the day except for the payment of gilts, and nothing significant lined up in the week too," a dealer with a state-owned bank said. Payment of Friday's gilts auction will result in an outflow of INR 220 billion.

During the day, inflows of INR 1.60 trillion are lined up from the reversal of two variable rate reverse repo auctions, and the coupon and redemption payment of the state-bonds' auction. The inflows and the ample surplus funds with the banks might keep the money market rates below the RBI's repo rate, dealers said. 

On Friday, banks maintained INR 9.93 trillion with the RBI as cash reserves, against INR 10.13 trillion maintained on Thursday. The average daily cash reserve requirement for the current fortnight ending on Friday is INR 10.12 trillion and, till last Friday, banks maintained an average of INR 10.24 trillion.  

Following are the other highlights:

* The weighted average call rate was 6.45%, against 6.44% on Friday.

* The weighted average rate for triparty repo was 6.37%, unchanged from Friday.

* Reversal of the standing deposit facility will add INR 107.44 billion to the banking system, while reversal of the marginal standing facility will drain INR 20.22 billion.

* During the day, the call rate is seen in a range of 5.90-6.60%. (Vidhushi RajPurohit)

End

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

Edited by Deepshikha Bhardwaj

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