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Informist, Monday, Nov. 25, 2024

By Vidhushi RajPurohit

MUMBAI – The interbank call money rate ended slightly below the Reserve Bank of India's standing deposit facility rate of 6.25% on Monday as demand for funds tapered off towards the end of the day. The one-day call money rate ended at 6.24%, against 6.00% at close for three-day loans on Friday. The weighted average call money rate was around the RBI's marginal standing facility rate (of 6.75%) at 6.73%, unchanged from Friday. The weighted average tri-party repo rate was at 6.71%, same as the previous close.

Surplus liquidity shrank to INR 190.37 billion on Friday from INR 841.55 billion on Thursday owing to the remainder of outflows on account of goods and services tax payment, dealers said. At the start of last week, liquidity was in a surplus of INR 1.69 trillion as of Nov. 18. But the tax outflows which began on Tuesday eroded the surplus to its current level. On Sunday, the surplus liquidity widened slightly to INR 282.04 billion.

Reduced surplus liquidity and banks' need for funds to maintain cash reserves with the RBI led to high interbank borrowing rates during the day. "The fall in surplus on Friday was not accounted for by the banks, which led to a bit of a strain on banks and thus the high rates in the money market," a dealer with a state-owned bank said. On Sunday, banks maintained cash reserves of INR 10.03 trillion with the RBI, against INR 10.12 trillion on Friday. The average daily cash reserve requirement for the fortnight ending Friday is INR 10.22 trillion. So far, in the current fortnight, banks have maintained an average amount of INR 8.00 trillion with the RBI, lower than the required sum. Market participants said the cash reserve maintained with the RBI is lagging after the liquidity strain posed by tax outflows.

To ease money market rates, the RBI conducted a four-day, variable rate repo auction worth INR 250 billion. The auction was oversubscribed as RBI received bids totalling INR 529.69 billion and set a cut-off rate of 6.60%. "The high bids at the auction were accounted for when one looks at the low surplus figure, and besides the notified account was also not enough when compared to the high money market rates during the day," a dealer with another state-owned bank said. 

Market participants expect the current liquidity crunch to be short-lived, anticipating the government's month-end spending to bring down high interbank borrowing rates later this week. "The inflows from the salary and pension payments will likely restore the surplus and pull it to a comfortable level, which will then ease down the rates," a dealer with a private bank said. "Besides, this is a usual thing for the surplus to neutralise once the GST outflows wipe out the excess funds but after that, the month-end payments again bring it up."

The following are the other highlights:

* The weighted average call rate was 6.72%, against 6.73% on Friday.

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

* Reversal of the standing deposit facility will add INR 421.52 billion to the banking system, while reversal of the marginal standing facility will drain INR 7.74 billion.

OUTLOOK

* On Tuesday, 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 owing to the reduced surplus liquidity.

* During the day, the call rate is seen in a range of 6.00-6.60%, dealers said.

CALL RATE

6.24%--Monday's close for one-day loans

6.80%--Monday's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above MSF rate on high demand for funds; liquidity surplus down

MUMBAI - The interbank call money rate was above the Reserve Bank of India's marginal standing facility rate of 6.75% on Monday, owing to high demand for funds from banks due to a sharp fall in surplus liquidity, dealers said. At 0930 IST, the one-day call money rate was at 6.85, against 6.00% at close on Friday for three-day loans.

On Friday, the surplus systemic liquidity was INR 190.37 billion, against INR 841.55 billion on Thursday. Friday, the banking sytem had the tightest cash conditions since Sept. 25 when there was a deficit of INR 99.58 billion. Dealers attributed the fall in surplus to the remaining outflows for goods and services tax payment for Maharashtra. "It seems like there were some GST outflows left for Maharashtra, which had elections going on at the time of other states' outflows," a dealer with a state-owned bank said.

On Wednesday, there was a holiday in Maharashtra for the state Assembly election. "We were not expecting the surplus to narrow after Thursday, but after Friday's data it seems like there were still some leftover tax outflows," a dealer with a private bank said. 

Market participants expect money market rates to remain high during the day owing to the meagre surplus liquidity and banks' requirement for funds to maintain cash reserves with the central bank. On Friday, banks maintained cash reserves of INR 10.12 trillion with the RBI, against INR 9.78 trillion on Thursday. The average daily cash reserve requirement for the fortnight that will end on Friday is INR 10.22 trillion. 

According to dealers, there is a high likelihood of the RBI conducting a variable rate repo auction to cool down the interbank borrowing rates. At 0930 IST, the weighted average triparty repo rate was at 6.70%. For call money, the weighted average rate was at 6.84%. "RBI will surely announce a VRR auction as the rates are around the marginal standing facility rate (6.75%), and, besides it conducted a VRR auction on Friday even when the surplus was around INR 800 billion," a dealer with a state-owned bank said. 

Friday, to ease money market rates which were around 6.75%, 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%.
 

Following are the other highlights:

* The weighted average call rate was 6.85%, against 6.73% on Friday.

* The weighted average rate for triparty repo was 6.70%, against 6.71% on Friday.

* Reversal of the standing deposit facility will add INR 161.92 billion to the banking system, while reversal of the marginal standing facility will drain INR 11.50 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 Tanima Banerjee

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