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Informist, Friday, Dec. 6, 2024

By Kabir Sharma

MUMBAI – The interbank call money rate ended near the Reserve Bank of India's standing deposit facility rate of 6.25% on Friday due to ease in demand for funds close to the end of the day, dealers said. "The rates were steady most of the day but during the last 1-2 hours they went down because demand was not there," a dealer at a state-owned bank said.

The three-day call money rate ended at 6.24%, as against 6.70% for one-day call on Thursday. The call rate fell slightly during early trade on positive sentiment after the RBI cut the cash reserve ratio of banks by 50 basis points to 4.00% of banks' net demand and time liabilities, dealers said. However, with the cut set to come into effect in two tranches starting Dec. 14, the sentiment soon faded, taking the rates back to near repo levels. 

Announcing the outcome of the December Monetary Policy Committee meeting, RBI Governor Shaktikanta Das said the cash reserve ratio will be cut by 25 bps effective from the fortnight starting Dec. 14, and by another 25 bps from the fortnight starting Dec. 28. The move is estimated to increase the liquidity of the banking system by INR 1.16 trillion, Das said. The RBI rate-setting panel left the policy repo rate unchanged at 6.50% and retained the 'neutral' policy stance.

According to RBI data, the liquidity surplus in the banking system narrowed to INR 423.70 billion on Thursday against INR 659.05 billion on Wednesday. "In general, banks are relieved as the outflows for this month will be manageable after the INR 1.16 trillion will be released from the CRR cut and then in the upcoming months there could probably be a significant easing in the money market rates," a dealer with a private bank said.

Until the CRR cut comes into effect, liquidity is expected to remain tight as outflows of tax deducted at source and excise duty are expected to start from Friday, dealers said. The outflows are expected to drain around INR 500 billion from the banking system, dealers said.  

"The impact of the increased liquidity will be visible from the next fortnight, while the conditions are expected to remain tight for next week owing to the TDS outflows," a dealer with a state-owned bank said.

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 6.10-6.50%, dealers said.

CALL RATE

6.24%--Friday's close for three-day loans

6.55%--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 RBI's repo rate due to demand for funds from banks

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% on Friday due to demand for funds in early trade as liquidity surplus narrowed, dealers said. At 1000 IST, the three-day call money rate was 6.55%, against 6.70% at close for one-day on Thursday. 

According to the data from RBI's website, the liquidity surplus narrowed further to INR 423.70 billion on Thursday against INR 659.05 billion on Wednesday. On Thursday, outflows for tax deducted at source and excise duty weighed on the banking system liquidity, dealers said. 

Some dealers also speculated that likely interventions from the central bank weighed on the market. "The liquidity has probably decreased due to likely intervention by the RBI in the foreign exchange market to prevent the currency (rupee) from depreciating," a dealer at a state-owned bank said. "The liquidity will fall from here because outflows are expected to start from today (Friday)."

Going forward, liquidity is expected to remain tight as outflows of tax deducted at source and excise duty are expected to start from Friday, dealers said. The outflows for the same are expected to drain around INR 500 billion from the banking system's liquidity, dealers said. Apart from this, no other inflows or outflows are scheduled for the day, dealers said. 

The market now awaits the outcome of RBI's Monetary Policy Committee's outcome at 1000 IST. While a majority expects the MPC to cut the cash reserve ratio by 25-50 basis points, a few see the committee cutting the repo rate, dealers said.  

Following are the other highlights:

* The weighted average call rate was 6.55%, against 6.53% on Thursday.

* The weighted average rate for triparty repo was 6.49%, against 6.54% on Thursday.

* Reversal of the standing deposit facility will add INR 547.25 billion to the banking system, while reversal of the marginal standing facility will drain INR 50.41 billion.

* During the day, the call rate is seen in a range of 6.00-6.75%. (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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