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Informist, Tuesday, Nov. 19, 2024

By Vidhushi RajPurohit

MUMBAI – The two-day interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 6.25% on Tuesday as demand for funds eased towards the end of the day. The two-day call money rate ended at 5.75%, unchanged from the close for one-day loans on Monday. Money markets will be shut on Wednesday on account of voting for the state assembly election in Maharashtra.

Money market rates were below the RBI's repo rate for most part of the day after banks met their funding needs for reserve maintenance with the RBI early in the day, dealers said. On Monday, banks maintained cash reserves of INR 9.97 trillion with the RBI, against INR 10.49 trillion on Sunday. The average daily cash reserve requirement for the fortnight that started on Saturday is INR 10.21 trillion. Market participants said for the next few days, as the outflow for the goods and services tax payments starts, banks will likely maintain lower reserves with the RBI. "Banks will start maintaining higher reserves with the RBI when the inflows from salary and pension payments start," a dealer with a state-owned bank said. 

Outflow for the goods and services tax payment will start from Thursday and dealers expect the quantum for the same to be around INR 1.00 trillion. Market participants expect the surplus to narrow down after the payment for the tax leaves the banking system. Surplus liquidity on Monday was INR 1.69 trillion, against INR 1.66 trillion on Sunday. 

However, dealers do not expect a significant rise in money market rates after the reduction in the surplus liquidity as they see upcoming inflows from the government's month-end spending restoring the surplus fairly soon. The inflows from the government's month-end spending will start from next week, dealers said. "There is not a big time lag between the GST outflows and the inflows from the salary and pension payments, so banks will likely not be that aggressive in borrowing at the overnight market even when the surplus lowers," a dealer with a private bank said. 

Ahead of the tax outflows, banks remained half-hearted in their participation at the RBI's three-day, INR 500 billion variable rate reverse repo action on Tuesday, where they parked only INR 225.65 billion. Dealers cited the tenure of the auction as the reason for the low participation as it was longer than what banks would have liked. "The reversal of the VRRR auction is due after the tax outflows, so banks did not want to lock up their funds," a dealer with a private bank said. The three-day variable rate reverse repo action will reverse on Friday. During the day, the reversal of Monday's overnight, INR 500 billion variable rate reverse repo action restored INR 454.80 billion to the banking system.

Following are the other highlights:

* The weighted average call rate was 6.50%, against 6.43% on Monday.

* The weighted average rate for tri-party repo was 6.40%, against 6.28% on Monday.

* Reversal of the standing deposit facility added INR 1.00 trillion to the banking system, while reversal of the marginal standing facility drained INR 35.12 billion.

OUTLOOK

* The money market will remain shut Wednesday. Thursday, the one-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%--Tuesday's close for two-day loans

6.55%--Tuesday's open for two-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above RBI's repo rate on demand for funds ahead of GST outflows 

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% on Tuesday, owing to demand for funds from banks to meet reserve requirements ahead of tax outflows, dealers said. At 0920 IST, the two-day call money rate was at 6.55%, against 5.75% at close on Monday for one-day loans. The Reserve Bank of India's holiday list shows Wednesday as a holiday in Mumbai under the Negotiable Instruments Act for the state assembly election in Maharashtra. 

Outflows for goods and services tax will likely leave the banking system on Thursday, dealers said. "Usually, the payment for GST is scheduled for the 20th and 21st of every month, but since the market will be shut on 20th, the outflows will take place on 21st this month," a dealer with a private bank said. Market participants expect the outflows for goods and services tax to be around INR 1.00 trillion.

Surplus liquidity on Monday was INR 1.69 trillion, against INR 1.66 trillion on Sunday. "The surplus liquidity will narrow after the tax outflows, but it might not have a major impact on the money market rates as after the tax payments, the banking system will receive an inflow through the month-end inflows," a dealer with a state-owned bank said. The inflows from the government's month-end spending will start from next week, dealers said. 

The RBI, continuing with its liquidity management operations, will conduct a three-day INR 500 billion variable rate reverse repo auction at 1000-1030 IST on Tuesday. Last fortnight, it conducted regular variable rate reverse repo auctions to mop up the excess surplus as the liquidity was above INR 2.00 trillion for majority of the days. For Tuesday's auction, dealers expect lukewarm participation from banks, estimating bids worth around INR 250 billion. "The reversal of the auction is after the tax outflows, so banks might not like to lock up their funds at the auction," a dealer with another state-owned bank said. The three-day auction will reverse on Friday.

On Monday, banks maintained cash reserves of INR 9.97 trillion with the RBI, against INR 10.49 trillion on Sunday. The average daily cash reserve requirement for the fortnight that started on Saturday is INR 10.21 trillion. "Banks will start maintaining higher reserves with the RBI when the inflows from salary and pension payments start," a dealer with a state-owned bank said. 

Following are the other highlights:

* The weighted average call rate was 6.54%, against 6.43% on Monday.

* The weighted average rate for triparty repo was 6.39%, against 6.28% on Monday.

* Reversal of the standing deposit facility added INR 1.00 trillion to the banking system, while reversal of the marginal standing facility drained INR 35.12 billion.

* During the day, the call rate is seen in a range of 6.20-6.70%. (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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