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Informist, Thursday, Nov. 21, 2024

By Vidhushi RajPurohit

MUMBAI – The interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 6.25% on Thursday as demand for funds eased towards the end of the day. The one-day call money rate ended at 6.00%, against 5.75% at the close for two-day loans on Tuesday. The weighted average call money rate was above the RBI's repo rate of 6.50% at 6.62%, against 6.50% on Tuesday. The weighted average triparty repo rate was at 6.70%, against 6.40% at the previous day's close. Money markets were shut on Wednesday on account of voting for the state assembly election in Maharashtra.

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. Payment for goods and services tax spiked the interbank borrowing rates during the early trading hours, dealers said. The call money rate was in the range of 5.10-6.90%. The tripaty repo rate was also in a high trading band at 6.50-6.90%. "Money market rates were high in the early hours as banks sought funds to meet the goods and services tax outflows," a dealer with a state-owned bank said. 

Dealers also cited the narrowed surplus liquidity as the reason that added to further strain on banks. On Wednesday, the surplus systemic liquidity was at INR 971.36 billion, against INR 1.04 trillion on Tuesday. "The liquidity surplus has narrowed down likely on account of some tax outflows that left the system on Tuesday, as Wednesday was a holiday, so some of the payment might have taken place a day before," a dealer with a private bank said. "The total outflow might be in a range of INR 1 trillion considering the high money market rates."

Amid high money market rates and reduced systemic surplus for the first time in the current month, the RBI did not conduct a variable rate reverse repo auction. Last fortnight, it conducted regular fine-tuning operations to mop up the excess surplus as the liquidity was above INR 2.00 trillion for most of the days.

Market participants expect the surplus liquidity to narrow further after the tax outflows. "The surplus will narrow, but it won't stay at that level as the salary and pension payment which is due for month-end will boost the surplus again," a dealer with a state-owned bank said. There are no other scheduled outflows once the GST payments are met, dealers said. The inflows from the government's month-end spending is anticipated by the market participants to start from next week, dealers said.

On Wednesday, banks maintained cash reserves of INR 10.08 trillion with the RBI, against INR 10.41 trillion on Tuesday. The average daily cash reserve requirement for the fortnight that started Saturday is INR 10.21 trillion. "Banks will maintain higher reserves once the tax outflows are over and the month-end spending restores back the surplus amount," a dealer with another private bank said. 

The following are the other highlights:

* The weighted average call rate was 6.62%, against 6.50% on Tuesday.

* The weighted average rate for triparty repo was 6.70%, against 6.40% on Tuesday.

* Reversal of the standing deposit facility added INR 504.90 billion to the banking system, while reversal of the marginal standing facility will drain INR 29.66 billion.

OUTLOOK

* Friday, the three-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

6.00%--Thursday's close for one-day loans

6.65%--Thursday's open for one-day loans

5.75%--Tuesday's close for two-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 to meet GST outflows

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% on Thursday, owing to demand for funds from banks due to the outflows for goods and services tax payments, dealers said. At 0950 IST, the one-day call money rate was at 6.65%, against 5.75% at close on Tuesday for two-day loans. The money market was shut on Wednesday owing to a holiday in Mumbai under the Negotiable Instruments Act for the state assembly election in Maharashtra.

On Tuesday, the surplus systemic liquidity was at INR 1.04 trillion, against INR 1.69 trillion on Monday. Dealers attributed the narrowing of surplus to outflows for goods and services tax. "As Wednesday was a holiday in Maharashtra, some of the tax outflows might have left the system on Tuesday," a dealer with a state-owned bank said. "Today there will also be outflows and when RBI releases the data for Wednesday we will get a clear picture of the exact outflow still remaining." Market participants expect the total tax outflow to be around INR 1.00 trillion, with some dealers predicting an even higher quantum of INR 1.25 trillion.

Owing to the narrow liquidity and outflows for the day, market participants are of the view that the interbank borrowing rates might be elevated on Thursday. "Money market rates will likely trade above the RBI's repo rate as banks will be in need of funds to manage the remaining outflows," a dealer with a private bank said. At 0950 IST, the weighted average triparty repo rate was above RBI's repo rate at 6.68%. For the call money market, the weighted average rate was at 6.65%.

So far, RBI has not announced any variable rate reverse repo auction for Thursday. Market participants do not expect the RBI to announce an auction either, as the surplus has reduced sharply. If there is no announcement later in the day, then it would be the first day of this month to have no variable rate reverse repo auction. Last fortnight, it conducted regular fine-tuning operations to mop up the excess surplus as the liquidity was above INR 2.00 trillion for most of the days.

On Tuesday, banks maintained cash reserves of INR 10.41 trillion with the RBI, against INR 9.97 trillion on Monday. The average daily cash reserve requirement for the fortnight that started on Saturday is INR 10.21 trillion. 

Following are the other highlights:

* The weighted average call rate was 6.65%, against 6.50% on Tuesday.

* The weighted average rate for triparty repo was 6.68%, against 6.40% on Tuesday.

* Reversal of the standing deposit facility will add INR 27.15 billion to the banking system, while reversal of the marginal standing facility will drain INR 24.06 billion.

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

End

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

Edited by Tanima Banerjee

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