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Informist, Tuesday, Nov. 12, 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% Tuesday as demand for funds was low, given high surplus liquidity. Moreover, with most banks having met their daily reserve requirements earlier in the day, few borrowers were left, which in turn dragged rates down towards the market close. The one-day call money rate ended at 5.75% against 5.50% on Monday, with the weighted average rate at 6.45%, same as on Monday.

On Monday, the surplus liquidity in the banking system slipped below INR 2.00 trillion for the first time in November. It was at INR 1.99 trillion, down slightly from INR 2.26 trillion Sunday, data from the RBI showed. Dealers said the slight reduction in the surplus was owing to the outflows to pay for INR 220 billion worth of gilts auctioned Friday. Market participants also cited the increase in cash parked with the RBI under the standing deposit facility as a reason for the surplus shrinking. On Monday, banks increased the amount parked with the RBI under the standing deposit facility to INR 1.29 trillion, from INR 533.23 billion on Sunday.

Amidst the slight reduction in surplus funds, the RBI's two-day INR 1.00 trillion variable rate reverse repo auction elicited scant participation from banks. Banks parked only INR 291.50 billion at the auction despite the money market rates trading much lower than 6.49%, the highest possible rate at which banks can park funds with the RBI. "Those who wanted to park excess funds already did so at Monday's auction and banks are already anticipating an overnight auction tomorrow (Wednesday), so they will probably park their funds there," a dealer with a state-owned bank said.

The RBI has been regularly conducting variable rate reverse repo auctions of various tenors since last week to absorb the excess liquidity in the banking system. At Monday's three-day, INR 1.75 trillion variable rate reverse repo auction, banks parked INR 619.60 billion.

Market participants are of the view that the surplus liquidity will likely remain around INR 2.00 trillion for the rest of the fortnight due to the lack of scheduled outflows and upcoming inflows from redemption. With the 9.15%, 2024 government bond maturing Thursday, INR 650.80 billion is set to flow into the banking system this week.

On Monday, banks increased their cash reserves with the RBI to INR 10.14 trillion from Sunday's amount of INR 9.83 trillion. The average daily cash reserve requirement for the current fortnight ending Friday is INR 10.12 trillion.

Following are the other highlights:

* The weighted average call rate was 6.45%, unchanged from Monday.

* The weighted average rate for tri-party repo was 6.22%, against 6.29% on Monday.

* Reversal of the standing deposit facility added INR 1.29 trillion to the banking system, while reversal of the marginal standing facility drained INR 66.27 billion.

OUTLOOK

* On Wednesday, 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

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

6.50%--Tuesday's open for one-day loans

5.50%--Monday'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 for funds from banks in early trade

MUMBAI – The interbank call money rate was at the Reserve Bank of India's repo rate of 6.50% Tuesday due to demand for funds from banks to meet reserve requirements in early trade, dealers said. At 0915 IST, the one-day call money rate was at 6.50%, against 5.50% at close on Monday. 

Liquidity surplus in the banking system Monday was at INR 1.99 trillion, slightly down from INR 2.26 trillion on Sunday, data from the RBI showed. Dealers attributed the reduction in the surplus to payment for gilts that were auctioned Friday, and an increase in banks' cash reserve level maintained with the RBI. Payment of Friday's gilts auction will result in an outflow of INR 220 billion.

To absorb the surplus liquidity, the RBI will conduct a two-day, variable rate reverse repo auction for INR 1.00 trillion at 1000-1030 IST. Market participants expect the subscription to be lower than Monday's auction. At the RBI's three-day, INR 1.75-trillion variable rate reverse repo auction held on Monday, banks parked INR 619.60 billion. "Banks might park around INR 450 billion at today's auction, as the surplus has slightly reduced, but some banks might bid higher if the triparty repo rate is too low at the time of the auction," a dealer with a state-owned bank said. At 0945 IST, the weighted average triparty repo rate was at 6.32%.

Banks maintained INR 10.14 trillion with the RBI as cash reserves on Monday, higher than Sunday's amount of INR 9.83 trillion. The average daily cash reserve requirement for the current fortnight ending on Friday is INR 10.12 trillion. Banks also increased the amount parked with the RBI under the standing deposit facility to INR 1.29 trillion, from INR 533.23 billion. 

During the day, inflows of INR 81.7 billion are lined up from the coupon and redemption payment of the state-bonds' auction. The inflows and the ample surplus funds with the banks might ease the money market rates later in the day, dealers said. "Even after the slight shrinking of surplus, the liquidity is more than adequate for the banks to not resort to borrow aggressively at the money market," a dealer with a private bank said. 

Following are the other highlights:

* The weighted average call rate was 6.54%, against 6.45% on Monday.

* The weighted average rate for triparty repo was 6.32%, against 6.29% on Monday.

* Reversal of the standing deposit facility will add INR 1.29 trillion to the banking system, while reversal of the marginal standing facility will drain INR 66.27 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 Rajeev Pai

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