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Informist, Wednesday, Nov. 27, 2024

By Vidhushi RajPurohit

MUMBAI – The interbank call money rate ended at the Reserve Bank of India's marginal standing facility rate of 6.75% on Wednesday due to firm demand for funds from banks amid a liquidity deficit, dealers said. The one-day call money rate ended at 6.75%, against 6.65% at close on Tuesday. The weighted average call money rate was above the RBI's repo rate at 6.71%, against 6.69% on Tuesday. The weighted average tri-party repo rate was at 6.69%, against 6.70% at the previous close.

The liquidity deficit rose on Tuesday to INR 364.18 billion, from INR 69.56 billion on Monday. Outflows for goods and services tax payments last week have pulled the banking system's liquidity into deficit, dealers said. At the start of November, liquidity was in a surplus of INR 2.08 trillion and until Nov. 19, it stayed in a surplus of above INR 1.00 trillion. From Nov. 20, the surplus started declining on account of tax outflows, which ultimately led to it slipping into a deficit of INR 69.56 billion on Monday. Moreover, the additional strain imposed by the RBI's continued intervention in the foreign exchange market as it sold dollars to support the rupee might also have had a hand in the wiping out of the systemic surplus, market participants said. "The selling of dollars by the RBI seems to have drained the liquidity which banks were not able to account for after the initial GST outflows," a dealer with a state-owned bank said. 

The RBI has been selling dollars to cushion the rupee, which fell to a record low of 84.50 per dollar last week, dealers said. Market participants expect further intervention from the RBI and that could put liquidity under pressure and subsequently push up money market rates.

During the day, payment for state government securities auctioned on Tuesday resulted in an outflow of INR 307.90 billion. However, market participants anticipate the inflow from the government's month-end spending to bring the liquidity back into surplus. "The inflows from the salary and pension payments will likely start from Thursday and that could provide some breather to the systemic liquidity," a dealer with a state-owned bank said. The inflow from salary and pension payments is expected to be around INR 1.00 trillion, dealers said.

Market participants expected the RBI to conduct a variable rate repo auction, but the central bank did not announce one. "The rates were high, and the deficit has also increased, but maybe the RBI is counting on the month-end inflows to start in the next few days and, hence, refrained from holding a VRR auction," a dealer with a private bank said.

Following are the other highlights:

* The weighted average call rate was 6.71%, against 6.69% on Tuesday.

* The weighted average rate for triparty repo was 6.69%, against 6.70% on Tuesday.

* Reversal of the standing deposit facility added INR 541.15 billion to the banking system, while reversal of the marginal standing facility drained INR 124.13 billion.

OUTLOOK

* On 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 reserve requirements.

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

CALL RATE

6.75%--Wednesday's close for one-day loans

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

6.65%--Tuesday'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 MSF rate as liquidity stays in deficit

MUMBAI - The interbank call money rate was above the Reserve Bank of India's marginal standing facility rate of 6.75% on Wednesday, owing to high demand for funds as liquidity deficit in the banking system increased, dealers said. At 0920 IST, the one-day call money rate was at 6.80%, against 6.65% at close on Tuesday.

The liquidity deficit rose on Tuesday to INR 364.18 billion, from INR 69.56 billion on Monday. "There were no inflows on Tuesday, and banks had to keep funds with the RBI for their CRR (cash reserve requirement) which led to the increase in the deficit further," a dealer with a state-owned bank said. Banks increased their cash reserves maintained with the RBI to INR 10.70 trillion on Tuesday from INR 10.11 trillion on Monday. The average daily cash reserve requirement for the fortnight ending Friday is INR 10.22 trillion.

The money market rates are expected by the market participants to remain above the RBI's repo rate (6.50%) unless banks receive some inflows from the government's month-end spending, dealers said. "We are expecting there to be some minor inflows today (Wednesday) from the salary and pension payments but until then there are no significant inflows which could ease the funding demand for banks," a dealer with a private bank said. Dealers expect the month-end inflow to be around INR 1.00 trillion. At 0920 IST, the weighted average triparty repo rate was at 6.70%. For call money, the weighted average rate was at 6.83%. 

Market participants expect the RBI to continue with its liquidity management operation to allay the money market rates. "RBI will likely conduct a VRR (variable rate repo) auction to infuse funds in the banking system as otherwise the rates will be above the RBI's repo rate," a dealer with another state-owned bank said. Dealers also expect the RBI to step in with open market operations in the near term, as December will have outflows for advance tax payment which will put strain on the banking system's liquidity. The Reserve Bank of India last sold government securities worth INR 200 million through screen-based open market operations in the week ended Oct. 4, data from the central bank's website showed.

To ease money market rates, the RBI Tuesday conducted a three-day, variable rate repo auction worth INR 250 billion. It received bids totalling INR 489.57 billion. The central bank accepted bids worth INR 250.06 billion and set a cut-off rate of 6.60%.

Following are the other highlights:

* The weighted average call rate was 6.83%, against 6.69% on Tuesday.

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

* Reversal of the standing deposit facility will add INR 541.15 billion to the banking system, while reversal of the marginal standing facility will drain INR 124.13 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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