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Informist, Thursday, Nov. 28, 2024

By Vidhushi RajPurohit

MUMBAI – The interbank call money rate ended around the Reserve Bank of India's marginal standing facility rate of 6.75% on Thursday due to firm demand for funds from banks amid a liquidity deficit, dealers said. The one-day call money rate ended at 6.70%, against 6.75% at close on Wednesday. The weighted average call money rate was above the RBI's repo rate at 6.71%, unchanged from Wednesday. The weighted average tri-party repo rate was at 6.67%, against 6.69% at the previous close.

The money market rates remained around the RBI's marginal standing facility rate for the majority of trading hours as dealers cited prevailing liquidity deficit in the banking system as the cause. The liquidity deficit on Wednesday was INR 308.48 billion, against INR 364.18 billion on Tuesday. "There is a probability that the month-end inflows which were expected today (Thursday), might have been delayed, so banks resorted to the overnight market to meet the funding requirements," a dealer with a state-owned bank said.

Market participants also pointed out the RBI's selling of dollars to cushion the rupee as a factor that is leading to strain on systemic liquidity. Thursday, the rupee fell to a record low of 84.50 against the dollar, before closing at 84.4850. "Going ahead for next month, the liquidity will likely remain under pressure as from Dec. 15 outflows for advance tax will start," a dealer with a state-owned bank said. "Before that, the premium for DICGC (Deposit Insurance and Credit Guarantee Corporation) will also result in an outflow."

To ease the money market rates, the RBI conducted an overnight variable rate repo auction for INR 250 billion. The auction was oversubscribed as banks placed bids worth INR 520.69 billion. The central bank accepted bids worth INR 250.09 billion and set a cut-off rate of 6.60%. At the time of the auction, the call money rate was trading around the RBI's marginal standing facility rate of 6.75%. 

Dealers expect the RBI to actively continue with its liquidity management operation if the month-end inflows do not suffice to bring the liquidity into a surplus high enough to withstand the RBI's selling of dollars and other tax outflows. Some market participants see a slight likelihood of open market operations from the RBI's side to infuse liquidity in the banking system. "Presently, it is hard to say with certainty regarding OMO (open market operation), but it will be a last resort for the RBI to manage liquidity," a dealer with another state-owned bank said.

Banks maintained INR 10.39 trillion with the RBI on Wednesday, against INR 10.70 trillion on Tuesday. The average daily cash reserve requirement for the fortnight ending Friday is INR 10.22 trillion.

Following are the other highlights:

* The weighted average call rate was 6.71%, unchanged from Wednesday.

* The weighted average rate for triparty repo was 6.67%, against 6.69% on Wednesday.

* Reversal of the standing deposit facility added INR 573.21 billion to the banking system, while reversal of the marginal standing facility drained INR 100.49 billion.

OUTLOOK

* On 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 reserve requirements.

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

CALL RATE

6.70%--Thursday's close for one-day loans

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

6.75%--Wednesday'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 remains in deficit

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

The liquidity deficit on Wednesday was INR 308.48 billion, against INR 364.18 billion on Tuesday. The market expects month-end spending by the government to bring the liquidity back into surplus, but the outflows lined up in December give an unpromising picture of the liquidity, dealers said. "The inflows from salary and pension payments might restore the surplus, but going ahead, outflows in December might lead to tight liquidity conditions," a dealer with a state-owned bank said. Dealers expect the month-end inflow to be around INR 1.00 trillion. 

Some dealers expect the RBI to conduct open market operations in the near term, if liquidity conditions remain tight. Money market rates are expected to remain above the RBI's repo rate of 6.50% in early trade. "Call rates will ease later in the day, once the month-end inflows start," a dealer with another state-owned bank said. At 0920 IST, the weighted average triparty repo rate was 6.69%. For call money, the weighted average rate was 6.80%.

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 goods and services 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 led to the wiping out of systemic surplus, market participants said. The rupee had hit a lifetime low of 84.5000 a dollar on Friday.

"Banks have to keep funds with the RBI for their CRR (cash reserve requirement) which is an additional reason for the money market rates to trade high along with the deficit," a dealer with a private bank said. Banks maintained INR 10.39 trillion with the RBI on Wednesday, against INR 10.70 trillion on Tuesday. The average daily cash reserve requirement for the fortnight ending Friday is INR 10.22 trillion.

Following are the other highlights:

* The weighted average call rate was 6.80%, against 6.71% on Wednesday.

* The weighted average rate for triparty repo was 6.69%, unchanged from Wednesday.

* Reversal of the standing deposit facility will add INR 573.21 billion to the banking system, while reversal of the marginal standing facility will drain INR 100.49 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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