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Informist, Monday, Dec. 2, 2024

By Vidhushi RajPurohit

MUMBAI – The interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 6.25% on Monday due to low demand for funds from banks as liquidity conditions returned to surplus, dealers said. The one-day call money rate ended at 6.00%, unchanged from the close on Saturday for two-day loans. The weighted average call money rate was near the RBI's repo rate at 6.52%, against 6.22% on Saturday. The weighted average tri-party repo rate was 6.36%, against 6.48% at the previous close.

Inflows from the government's month-end spending provided a breather to the banking system which has been grappling with a liquidity crunch for more than 10 days. Liquidity slipped into deficit on Nov. 25 after tax outflows and the RBI's selling of dollars to support the rupee drained cash from the banking system last month. Liquidity was in a surplus of INR 511.23 billion on Sunday, against a deficit of INR 94.89 billion on Thursday. "Month-end inflows started on Thursday, and they might last till today (Monday)," a dealer with a state-owned bank said. "The surplus is still not that high and there are upcoming outflows which might weigh on the amount, but for now it is comfortable as there is no immediate outflow."   

During the day, the call money market rates were trading around the RBI's repo rate of 6.50% and later eased towards the standing deposit facility rate after the cash reserve requirements were met, dealers said. "Banks' borrowing needs subsided slightly on account of the current surplus liquidity and lack of any major outflows during the day," a dealer with a private bank said. Banks maintained INR 10.64 trillion with the RBI on Sunday, against INR 10.62 trillion on Saturday. The average daily cash reserve requirement for the fortnight which began on Saturday is INR 10.13 trillion. 

Market participants weighed the odds of a possible cut in the cash reserve requirement at the monetary policy committee meeting which ends Friday. "Rate-cut seems a distant possibility, but there is a pressure building up regarding a CRR (cash reserve ratio) cut," a dealer with another state-owned bank said. "If a CRR cut goes through, it would likely be an incremental one starting with a 25 basis points lowering." Currently, banks have to maintain 4.5% of their Net Demand and Time Liabilities with the RBI in cash. "It would be a welcome measure if there is an ease in the CRR, as banks will be able to manage the outflows with a greater ease," a dealer with a private bank said. Most market participants have ruled out the chances of bond purchases under open market operations, citing it as a tool of last resort.

Following are the other highlights:

* The weighted average call rate was 6.52%, against 6.22% on Saturday.

* The weighted average rate for triparty repo was 6.36%, against 6.48% on Thursday.

* Reversal of the standing deposit facility added INR 408.79 billion to the banking system, while reversal of the marginal standing facility drained INR 21.45 billion.

OUTLOOK

* On Tuesday, the one-day call money rate may open near the RBI's repo rate of 6.50% due to demand for funds from banks in early trade to meet reserve reuirments.

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

CALL RATE

6.00%--Monday's close for one-day loans

6.60%--Monday's open for one-day loans

6.00%--Saturday's close for two-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above RBI's MSF rate on demand for funds in early trade

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% on Monday due to demand for funds from banks in early trade as banks borrowed funds to fulfil their cash reserve requirement, dealers said. At 0950 IST, the one-day call money rate was 6.60%, against 6.00% at the close for two-day loans on Saturday. 

After staying in a deficit for almost an entire week, the banking system liquidity turned back into a meagre surplus on Friday. The latest data from RBI showed the liquidity was in a surplus of INR 496.12 billion on Friday against a deficit of INR 94.89 billion on Thursday. 

The banking liquidity was aided by inflows on account of government month-end spending, dealers said. The market had pegged inflows from the same amounting to up to INR 1 trillion, dealers said. "Inflows from month-end spending have resulted in a surplus in the latest data. I think around INR 400 billion has already entered into the system," a dealer at a private bank said. "Around INR 500 billion is still left, I think, that will be reflected in Saturday's data." 

The money market rates are expected to trade around the RBI's marginal standing facility rate of 6.75% as the meagre liquidity surplus may not help fulfil banks' demand, dealers said. "Even though the liquidity is in a surplus right now, it is not enough to give a breather to money market rates," a dealer at a state-owned bank said. "There are chances of liquidity turning back into deficit, as a result traders will try to meet their demand for funds by borrowing."

The banking system liquidity is expected to fall back into a deficit in coming days due to outflows of tax deducted at source and excise duty payments, which are expected to drain around INR 500 billion, dealers said. Apart from that, outflows of INR 300 billion scheduled Monday for a gilt auction held Friday will also weigh on the banking system liquidity, dealers said.

The following are the other highlights:

* The weighted average call rate was 6.60%, against 6.22% on Saturday.

* The weighted average rate for triparty repo was 6.43%, against 6.48% on Thursday.

* Reversal of the standing deposit facility will add INR 27.78 billion to the banking system, while reversal of the marginal standing facility will drain INR 23.16 billion.

* During the day, the call rate is seen in a range of 6.10-6.80%. (Siddhi Chauhan)

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Saji George Titus

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