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Informist, Friday, Nov. 29, 2024

By Vidhushi RajPurohit

MUMBAI – The interbank call money rate ended near the Reserve Bank of India's marginal standing facility rate of 6.75% on Friday due to firm demand for funds from banks amid a liquidity deficit, dealers said. The three-day call money rate ended at 6.70%, unchanged from the close for one-day loans on Thursday. The weighted average call money rate was at the RBI's marginal standing facility rate of 6.75%, against 6.71% Thursday. The weighted average tri-party repo rate was 6.65%, against 6.67% at the previous close.

Tight liquidity conditions in the banking system and banks' weekend funding requirements kept the money market rates above the RBI's repo rate for most of the trading hours. On Thursday, liquidity was in a deficit of INR 94.89 billion, against INR 308.48 billion on Wednesday. Market participants said that some likely inflows from the government's month-end spending toned down the deficit. "Thursday, the month-end inflows seem to have started. Today (Friday) there would also have been inflows, but we'll get a clear picture once the data from RBI comes on Monday," a dealer with a state-owned bank said. Market participants expect the inflows to be in tranches, with the total inflows pegged at an estimate of INR 1.00 trillion.

Dealers expect the liquidity to be back in surplus in the first week of December, but the selling of dollars by the RBI will likely keep the liquidity under strain. The rupee settled at 84.4825 a dollar, after falling to 84.5000 during the day. "The market will likely see active VRR (variable rate repo) auctions in the second half of December if the month-end inflows are not enough for the tax outflows," a dealer with a private bank said. "But for next week, the call rates might get a relief as the inflows from salary and pension payments will pull the liquidity into surplus."

Dealers are at odds about the course of action the RBI might take to ease the pressure on liquidity if the conditions remain tight. Some market participants have ruled out the chances of open market operations, citing it as a tool of last resort. Other participants are weighing the likelihood of a reduction in the cash reserve requirement. However, the prevailing consensus is that the RBI will probably wait for the first weeks of December and gauge the liquidity conditions before devising any actions.

In line with the expectations of market participants, the response of banks at the RBI's 14-day, INR 250 billion variable rate reverse repo auction was tepid. Banks parked a meagre INR 24.76 billion at the auction. "Locking up funds for 14 days at VRRR action, when there is such uncertainty in the market regarding the liquidity conditions, did not seem like a good choice, so banks remained on the sidelines," a dealer with a private bank said.

Banks maintained INR 10.39 trillion with the RBI on Thursday, the same as on Wednesday. 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 6.75%, against 6.71% on Thursday.

* The weighted average rate for triparty repo was 6.65%, against 6.67% on Thursday.

* Reversal of the standing deposit facility added INR 712.24 billion to the banking system, while reversal of the marginal standing facility drained INR 28.91 billion.

OUTLOOK

* On Saturday, the two-day call money rate may open below the RBI's repo rate of 6.50% due to low demand for funds as banks have already met regulatory requirements.

* As is usually the case on Saturdays, volumes are expected to be low.

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

CALL RATE

6.70%--Friday's close for three-day loans

6.65%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo rate on demand from bks; RBI holds 14-day VRRR auction

MUMBAI - The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% on Friday, owing to high demand for funds as liquidity remained in deficit, and borrowing by banks to meet reserve requirements for the weekend, dealers said. At 0920 IST, the three-day call money rate was 6.65%, against 6.70% at close for one-day loans on Thursday.

"It is usual for rates to trade high on Fridays, as banks borrow funds for three days and thus lenders tend to charge higher," a dealer with a state-owned bank said. "This is reporting Friday and liquidity is still in deficit, so there will be even higher trades." The liquidity deficit on Thursday eased to INR 94.89 billion, against INR 308.48 billion on Wednesday. Meanwhile, some market participants expect inflows from the government's month-end spending to provide some breather to the rates. "Inflows from salary and pension payments will likely bring the liquidity back into surplus and which will lead to a moderation in the call market rates," a dealer with a private bank said. Dealers expect the month-end inflows to be around INR 1.00 trillion. 

The money market rates have been trading around the RBI's marginal standing facility rate of 6.75% for the entire week as the liquidity slipped to deficit on Monday. The weighted average call rate was in the range of 6.69-6.72%. For triparty repo, the weighted average rate was in the range of 6.67-6.71%, data from the CCIL website showed. Market participants cited the goods and services tax outflows and the RBI's selling of dollars to cushion the rupee as the reasons for the deficit. On Thursday, the rupee fell to a record low of 84.50 against the dollar, before closing at 84.4850.

On Thursday, post market hours, the RBI announced a 14-day variable rate reverse repo auction for a notified amount of INR 250 billion. Market participants expect the auction to receive a tepid response, as they cite banks' unwillingness to lock up the funds for an entire fortnight. "The amount of the auction is not that high but still there is a deficit in the system, so banks will try not to take any high risks," a dealer with a private bank said. Banks might park around INR 70 billion at the auction, dealers said.

Banks maintained INR 10.39 trillion with the RBI on Thursday, the same as on Wednesday. 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 6.69%, against 6.71% on Thursday.

* The weighted average rate for triparty repo was 6.64%, against 6.67% on Thursday.

* Reversal of the standing deposit facility will add INR 712.24 billion to the banking system, while reversal of the marginal standing facility will drain INR 28.91 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 Ashish Shirke

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