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Informist, Friday, Nov. 22, 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 Friday as demand for funds softened towards the end of the day. The three-day call money rate ended at 6.00%, unchanged from the close for one-day loans on Thursday. The weighted average call money rate was around the RBI's marginal standing facility rate of 6.75% at 6.73%, against 6.62% on Thursday. The weighted average tri-party repo rate was at 6.71%, against 6.70% at the previous close.

Reduced surplus liquidity after the goods and services tax outflows and weekend funding requirements led to high money market rates in early trading hours, dealers said. On Thursday, the surplus systemic liquidity was INR 841.55 billion, against INR 971.36 billion on Wednesday. The week started with surplus liquidity of INR 1.69 trillion on Monday and from Tuesday, banks saw outflows for GST payments, dealers said. Surplus liquidity on Tuesday was at INR 1.03 trillion. The call money market rate opened at 6.80%, above the RBI's marginal standing facility rate of 6.75%.

To ease money market rates, the RBI conducted a six-day, INR 250 billion variable rate repo auction. The auction was oversubscribed as RBI received bids totalling INR 354.20 billion, and set a cut-off rate of 6.58%.

Dealers said the aggressive bidding was due to the high tri-party repo rate at the time of the auction. "The tri-party repo rate was at the RBI's MSF rate (6.75%), so the banks who were tight on funds placed higher bids," a dealer with a state-owned bank said. Market participants also said the bids would have been even higher if not for the anticipated month-end inflows, which are scheduled for next week. "Banks are counting on the salary and pension payments to pick the surplus up and ease the funding strain," a dealer with another state-owned bank said.

On Thursday, banks maintained cash reserves of INR 9.78 trillion with the RBI, against INR 10.09 trillion on Wednesday. The average daily cash reserve requirement for the fortnight that started Saturday is INR 10.22 trillion. So far, in the current fortnight, banks have maintained an average amount of INR 10.21 trillion with the RBI, slightly lower than the required sum. Dealers said that once the inflows from the government's month-end spending start, banks will start maintaining higher cash reserves to make up for the deficit amount.

The following are the other highlights:

* The weighted average call rate was 6.75%, against 6.62% on Thursday.

* The weighted average rate for tri-party repo was 6.71%, against 6.70% on Thursday.

* Reversal of the standing deposit facility will add INR 470.45 billion to the banking system, while reversal of the marginal standing facility will drain INR 119.91 billion.

OUTLOOK

* The money market is shut on Saturday. On Monday, 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

6.00%--Friday's close for three-day loans

6.80%--Friday's open for three-day loans

6.00%--Thursday'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 after GST outflows

MUMBAI – The interbank call money rate was above the Reserve Bank of India's marginal standing facility rate of 6.75% on Friday, owing to high demand for funds from banks after goods and services tax outflows, dealers said. At 0920 IST, the three-day call money rate was at 6.80%, against 6.00% at close on Thursday for one-day loans.

On Thursday, the surplus systemic liquidity was INR 841.55 billion, against INR 971.36 billion on Wednesday. Over the last three days, outflows for goods and services tax have drained some of the surplus liquidity, which was earlier above INR 1.00 trillion, dealers said. "If we look at just the Wednesday and Thursday data, then the difference is not that large, because this time the major chunk of outflows seems to have left the (banking) system on Tuesday," a dealer with a state-owned bank said. Market participants said the total tax outflow was around INR 1.00 trillion, with some dealers pegging it at INR 1.25 trillion.

On Tuesday, the surplus liquidity was INR 1.03 trillion, against Monday's figure of INR 1.69 trillion. The money market was shut on Wednesday owing to a trading holiday for the state assembly election in Maharashtra, hence tax outflows this month started earlier than usual, dealers said.

Money market rates are expected to remain high during the day, as is usual after tax outflows, dealers said. "Tax outflows have narrowed the surplus, but that is an additional factor as, without any outflows too, the rates are usually high on Friday owing to banks' weekend funding requirements," a dealer with a private bank said. According to dealers, on Friday, for three-day interbank borrowing, lenders tend to charge higher because of the comparatively longer tenure than the one-day tenure.

However, dealers also said that later in the day there is a possibility of rates moderating once the reserve requirement of banks is met. At 0920 IST, the weighted average triparty repo rate was above RBI's repo rate of 6.50% at 6.72%. For the call money market, the weighted average rate was 6.85%, higher than the RBI's marginal standing facility rate. During the day, inflows from the reversal of two variable rate reverse repo auctions is scheduled which will restore a total sum of INR 512.85 billion to the banking system.

On Thursday, banks maintained cash reserves of INR 9.78 trillion with the RBI, against INR 10.09 trillion on Wednesday. The average daily cash reserve requirement for the fortnight that started on Saturday is INR 10.22 trillion.

Following are the other highlights:

* The weighted average call rate was 6.85%, against 6.62% on Thursday.

* The weighted average rate for triparty repo was 6.72%, against 6.70% on Thursday.

* Reversal of the standing deposit facility will add INR 470.45 billion to the banking system, while reversal of the marginal standing facility will drain INR 119.91 billion.

* During the day, the call rate is seen in a range of 6.00-6.70%.

End

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

Edited by Rajeev Pai

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