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Informist, Wednesday, Nov. 13, 2024

By Vidhushi RajPurohit

MUMBAI - The interbank call money rate ended above the Reserve Bank of India's repo rate despite a large liquidity surplus in the banking system as a few banks were pressed for funds due to uneven distribution of liquidity. While comfortable liquidity generally enables cash-strapped banks to avail funds at lower rates, this was not the case on Wednesday as banks with excess funds had already deployed those at the central bank's reverse repo.

The one-day call money rate ended at 6.60% against 5.75% on Tuesday, although the weighted average rate fell to 6.39% from 6.45% on Tuesday.

The surplus liquidity in the banking system was again above INR 2.00 trillion, after slipping to INR 1.99 trillion Monday. On Tuesday, the surplus was at INR 2.05 trillion. Despite the high surplus, the interbank borrowing market saw stray deals at high rates during the day. The tri-party repo rate even topped the RBI's marginal standing facility rate of 6.75% during the day. "After the participation at today's VRRR (variable rate reverse repo) auction, banks with funds to spare were not on the lending side and, despite the overall swell in surplus, a few banks were in need of funds because the surplus is not evenly distributed across all the banks," a dealer with a state-owned bank said.

The overnight variable rate reverse repo auction for INR 500 billion was almost fully subscribed, with banks parking INR 497.32 billion with the RBI. "The regular VRRR auctions by the RBI have more or less led the banks to part with the extra funds, other than that (which) they need to keep for sudden outflows," a dealer with a private bank said.

On Thursday, maturity of four variable rate reverse repo auctions of various tenures conducted by the RBI will restore INR 1.66 trillion to the banking system. Inflow from the redemption of 9.15%. 2024 gilts is scheduled to bring in another INR 650.80 billion. As market participants had expected, post-market hours, the RBI announced a 15-day, INR 1.75 trillion variable rate reverse repo auction on Thursday.

Banks maintained INR 10.07 trillion with the RBI as cash reserves on Tuesday, against Monday's amount of INR 10.14 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 6.39%, against 6.45% on Tuesday.

* The weighted average rate for tri-party repo was 6.37%, against 6.22% on Tuesday.

* Reversal of the standing deposit facility added INR 33.73 billion to the banking system, while reversal of the marginal standing facility drained INR 291.50 billion.

OUTLOOK

* On Thursday, the four-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

6.60%--Wednesday's close for one-day loans

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

5.75%--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 liquidity ample; RBI to hold overnight VRRR

MUMBAI – The interbank call money rate was below the Reserve Bank of India's repo rate of 6.50% on Wednesday due to low demand for funds from banks amid ample systemic surplus, dealers said. At 0932 IST, the one-day call money rate was at 6.35%, against 5.75% at close on Tuesday. 

Liquidity surplus in the banking system on Monday was at INR 2.05 trillion, slightly higher than INR 1.99 trillion on Monday, data from the RBI showed. Continuing with its liquidity managing operations, the RBI on Tuesday announced an overnight INR 500-billion variable rate reverse repo auction at 1000-1030 IST on Wednesday. The announcement was in line with the expectations of market participants. "More than the excess surplus, the RBI also wants to keep the money market rates from trading at too low of a level," a dealer with a state-owned bank said. 

Since the start of the month, interbank borrowing rates have been falling below the RBI's standing deposit facility rate of 6.25% on account of a high systemic surplus, dealers said. "Some banks that have funding need help to keep the money market rates afloat. Other than that, the overall system is flush with funds after October's month-end spending," a dealer with a private bank said. The government's month-end spending brought in an inflow of around INR 1 trillion into the banking system and, since there has not been significant outflows, the surplus has been at and above INR 2.00 trillion for almost all the days in November. 

Aside from month-end payments, dealers said redemption inflows have also helped the surplus to remain high. However, market participants said the RBI's continued intervention in the foreign exchange market as it sells dollars to prevent the rupee from falling might impact the surplus too. On Tuesday, the central bank sold around $1 billion as the rupee fell to a record low of 84.4100 a dollar during the day, dealers said. On Tuesday, the rupee settled at 84.3925 against the dollar, flat from its previous close.

Banks maintained INR 10.07 trillion with the RBI as cash reserves on Tuesday, against Monday's amount of INR 10.14 trillion. The average daily cash reserve requirement for the current fortnight ending on Friday is INR 10.12 trillion. 

Following are the other highlights:

* The weighted average call rate was 6.35%, against 6.45% on Tuesday.

* The weighted average rate for triparty repo was 6.27%, against 6.22% on Tuesday.

* Reversal of the standing deposit facility will add INR 33.73 billion to the banking system, while reversal of the marginal standing facility will drain INR 291.50 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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