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Informist, Monday, Nov. 18, 2024

By Vidhushi RajPurohit

MUMBAI – The one-day interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 6.25% on Monday as demand for funds eased towards the end of the day, while liquidity surplus remained at a comfortable level. The one-day call money rate ended at 5.75%, against 6.00% for two-day loans on Saturday. After opening above the RBI's repo rate of 6.50%, the call money rate fell below the standing deposit facility rate as most banks had covered their funding needs earlier in the day.

The liquidity surplus in the banking system on Sunday was at INR 1.66 trillion, slightly higher than INR 1.64 trillion on Saturday, data from the RBI showed. In the fortnight ended Friday, the surplus remained above INR 2.00 trillion for most days due to redemption of government securities. During this fortnight, government bond redemptions brought in an inflow of around INR 1.50 trillion into the banking sytem. Market participants attributed the narrowing of surplus to banks' deployment of funds towards increasing their cash reserves with the RBI. 

As of Sunday, banks maintained INR 10.49 trillion with the RBI as cash reserves, against 10.51 trillion on Saturday, data from the RBI showed. The average daily cash reserve requirement for the fortnight started Saturday is INR 10.22 trillion. "Banks want to maintain higher reserves with RBI at the start of the fortnight, as this week there are tax outflows lined up, so they want to minimise the reserve pressure on them," a dealer with a state-owned bank said. Market participants expect outflows on account of goods and services tax payment to start from Thursday.

The RBI remained active in its liquidity management operations, as it held two variable rate reverse repo actions during the day. At the INR 1.00-trillion four-day auction, banks only parked INR 287.20 billion. Banks cited the long-tenure of the auction as the reason for the low participation. "The reversal of the VRRR auction is due after the tax outflows, so banks were not up for locking their funds for four days," a dealer with a private bank said. The four-day variable rate reverse repo action will reverse on Friday. 

After a tepid response at the four-day auction, the RBI conducted another overnight variable rate reverse repo auction for a notified amount of INR 500 billion. The overnight auction elicited greater participation from banks as they parked INR 454.80 billion this time. The RBI is expected to reduce the frequency of variable rate reverse repo auctions for this week on account of the scheduled GST payment outflows, expected to be around INR 1.00 trillion, dealers said.   

Following are the other highlights:

* The weighted average call rate was 6.43%, against 6.16% on Saturday.

* The weighted average rate for tri-party repo was 6.28%, against 6.04% on Saturday.

* Reversal of the standing deposit facility will add INR 1.06 trillion to the banking system, while reversal of the marginal standing facility will drain INR 1.25 billion.

OUTLOOK

* On Tuesday, the two-day call money rate may open around the RBI's repo rate of 6.50% due to demand for funds from banks in early trading hours 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%--Monday's close for one-day loans

6.55%--Monday's open for one-day loans

6.00%--Saturday's close for two-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo rate on demand for funds from banks in early trade

MUMBAI – The one-day interbank call money rate was dealt above the Reserve Bank of India's repo rate of 6.50% Monday due to demand for funds from banks to meet reserve requirements in early trade, as the surplus liquidity narrowed slightly, dealers said. At 0915 IST, the one-day call money rate was at 6.55%, against 6.00% at close for two-day loans Saturday. Money markets were shut Friday for Guru Nanak Jayanti.

The liquidity surplus in the banking system on Thursday was at INR 1.81 trillion, against INR 2.12 trillion Wednesday, data from the RBI showed. "The surplus narrowed slightly on some minor regular outflows, but nothing significant was there on Thursday," a dealer with a state-owned bank said. "Banks also deployed their additional funds towards increasing their reserves maintained with the RBI on Thursday." Banks maintained INR 10.34 trillion with the RBI as cash balances on Thursday, against Wednesday's amount of 9.93 trillion. The average daily cash reserve requirement for the last fortnight that ended Friday was INR 10.12 trillion.

During the day, payment for gilts auctioned on Thursday will result in an outflow of INR 370 billion. No other outflows are lined up for the day. Meanwhile, market participants expect inflows from the collection of goods and services tax to begin Monday. Outflow for the goods and services tax will likely start from Thursday, dealers said.

Post market hours Thursday, RBI had announced a four-day, INR 1.00 trillion variable rate reverse repo auction for Monday. The auction is at 1000-1030 IST. Market participants expect the bids for Monday's auction to be below INR 500 billion, owing to GST outflows scheduled for this week. "The reversal of the VRRR auction is due after the tax outflows. This could dampen the participation at today's (Monday's) auction," a dealer with a private bank said. The auction will reverse on Friday. 

Market participants expect the GST outflows to be more than INR 700 billion. "The surplus liquidity will not have that big of an impact from the GST outflows as soon after the inflows from the month-end spending will start," a dealer with another private bank said. Market participants expect the inflows for the government's month-ending spending to begin next week. Remaining on the same lines as last fortnight, which ended Thursday, market participants expect the RBI to conduct regular variable rate reverse repo auctions in the current fortnight as well.

Following are the other highlights:

* The weighted average call rate was 6.53%, against 6.16% on Saturday.

* The weighted average rate for tri-party repo was 6.32%, against 6.04% on Saturday.

* Reversal of the standing deposit facility will add INR 363.26 billion to the banking system, while reversal of the marginal standing facility will drain INR 7.00 billion.

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

End

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

Edited by Tanima Banerjee

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