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Informist, Tuesday, Nov. 26, 2024

By Vidhushi RajPurohit

MUMBAI – The interbank call money rate ended above the Reserve Bank of India's repo rate of 6.50% on Tuesday due to firm demand for funds from banks amid a liquidity deficit, dealers said. The one-day call money rate ended at 6.65%, against 6.24% at close on Monday. The weighted average call money rate was above the RBI's repo rate at 6.69%, against 6.72% on Monday. The weighted average tri-party repo rate was at 6.71%, same as the previous close.

Liquidity slipped into deficit on Monday as the already modest surplus in the banking system drained on account of outflows for Friday's gilt auction. Monday, liquidity was in a deficit of INR 69.56 billion, against the meagre surplus of INR 282.04 billion Sunday. Payment for gilts which were auctioned on Friday amounted to INR 320 billion. However, market participants expect the liquidity to return to surplus in the next few days once the inflows from the government's month-end spending enter the banking sytem. The inflow from salary and pension payments is expected to be around INR 1.25 trillion, dealers said. 

"The current deficit is a temporary mismatch and soon the systemic liquidity will move back to surplus, as now, after the change of policy stance, the RBI also wants to keep the money market rates around the repo rate," a dealer with a private bank said. At the Oct. Monetary Policy Committee's meeting, the rate-setting panel kept the policy rates steady but changed the policy stance to 'neutral' from 'withdrawal of accommodation'. Dealers are of the view that the RBI will continue its intervention through its liquidity management operations to prevent any sharp volatility in the money market rates. 

On the lines of market participants' expectations, the RBI conducted a three-day, INR 250 billion variable rate repo auction. The auction was oversubscribed as banks placed bids worth INR 489.57 billion. The central bank accepted bids worth INR 250.06 billion and set a cut-off rate of 6.60%. At the time of the auction, the call money rate was trading above the RBI's marginal standing facility rate at 6.80%. 

The following are the other highlights:

* The weighted average call rate was 6.69%, against 6.72% on Monday.

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

* Reversal of the standing deposit facility added INR 567.62 billion to the banking system, while reversal of the marginal standing facility drained INR 106.04 billion.

OUTLOOK

* On Wednesday, 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 reserve requirements.

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

CALL RATE

6.65%--Tuesday's close for one-day loans

6.75%--Tuesday's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: At MSF rate on demand for funds as liquidity slips to deficit

MUMBAI - The interbank call money rate was above the Reserve Bank of India's marginal standing facility rate of 6.75% on Tuesday, owing to high demand for funds as banks no longer had any surplus liquidity, dealers said. At 0930 IST, the one-day call money rate was at 6.75%, against 6.24% at close on Monday.

Monday, liquidity slipped into a deficit of INR 69.56 trillion, from a modest surplus of INR 282.04 billion Sunday. The last time the liquidity was in deficit was on Sep. 25, when the banking system had a shortfall of INR 99.58 billion. Outflow for the payment of gilts auctioned on Friday, and banks' deployment of funds towards maintaining reserves with the RBI resulted in the fall in systemic liquidity, dealers said. Monday, payment for gilts auctioned on Friday drained INR 320 billion from the banking system. Banks also increased their cash reserves maintained with the RBI to INR 10.11 trillion Monday, from INR 10.03 trillion Sunday.

"Banks are lagging in terms of maintaining the average required amount for reserves, so before the fortnight ends, banks will try to fill up the gap," a dealer with a private bank said. 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 10.15 trillion with the RBI, lower than the required sum.

Last week, outflows for goods and services tax reduced the surplus from INR 1.69 trillion to INR 190.37 billion on Friday. "The total GST outflows this time were around INR 1.50 trillion, higher than the expectation for INR 1.00 trillion," a dealer with a state-owned bank said. However, market players do not expect the deficit to linger for long, as they anticipate the inflows from the month-end spending to restore the surplus. "The inflows from the salary and pension payments will likely start in the next few days, and that will pull the liquidity back into surplus," a dealer with another private bank said. Dealers expect the inflows to be around INR 1.20 trillion.

Market participants expect money market rates to remain high during the day owing to the deficit liquidity and banks' requirement for funds to maintain cash reserves with the central bank. According to dealers, there is a high likelihood of the RBI conducting a variable rate repo auction to allay 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 6.83%.

To ease money market rates, the RBI Monday conducted a four-day, variable rate repo auction worth INR 250 billion. It received bids totalling INR 529.69 billion and set a cut-off rate of 6.60%.

Following are the other highlights:

* The weighted average call rate was 6.83%, against 6.72% on Monday.

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

* Reversal of the standing deposit facility will add INR 567.62 billion to the banking system, while reversal of the marginal standing facility will drain INR 106.04 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 Akul Nishant Akhoury

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