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Informist, Monday, Dec. 9, 2024

By Siddhi Chauhan

MUMBAI – The interbank call money rate ended below the Reserve Bank of India's standing deposit facility rate of 6.25% on Monday as demand for funds from banks eased towards the end of the day, dealers said. The one-day call money rate ended at 5.75%, as against 6.00% for two-day loans on Saturday.

Data on the RBI's website showed liquidity surplus narrowed to INR 432.61 billion on Sunday from INR 473.00 billion on Saturday. This was due to outflows of tax deducted at source and excise duty on Saturday, dealers said.

Outflows for tax deducted at source and excise duty had already drained INR 200 billion to INR 250 billion from the banking system on Saturday. A similar amount likely went out of the system on Monday, dealers said. Outflows of INR 300 billion for payment towards government securities auctioned on Friday also took place during the day, dealers said. 

Keeping the outflows in mind and in order to ease the money market rates, the RBI conducted an overnight variable rate repo operation for a notified amount of INR 500 billion. However, the auction did not see a euphoric response from the market.

At the auction, banks placed bids worth INR 406.30 billion. The central bank accepted bids all the bids and set a cut-off rate of 6.51%. "A lot of people were expecting VRR (variable rate repo) auction to be fully subscribed, but that did not happen because the TREPs rate (triparty repo rate) was at a comfortable band," a dealer at a state-owned bank said. "If the rates would have been trading near MSF (marginal standing facility), then the auction would have been fully subscribed." At the time of the auction, the triparty repo rate traded near the RBI's repo rate of 6.50%.

Despite the outflows scheduled on Monday, money market rates did not spike because of the 50 basis points cut in cash reserve ratio of banks' net demand and time liabilities to 4.00%, dealers said.

"The outflows for excise duty have almost been completed. The market is also positive due to the CRR cut as it would help add around INR 1.16 trillion to the system, making it easier for the banks to deal with outflows," a dealer at a private bank said. Outflows for advance tax which will start next week are expected to drain around INR 1 trillion from the banking system, dealers said.

Announcing the outcome of the Monetary Policy Committee meeting, RBI Governor Shaktikanta Das on Friday said the CRR will be cut by 25 bps from the fortnight starting Dec. 14, and by another 25 bps from the fortnight starting Dec. 28.

OUTLOOK

* On Tuesday, the one-day call money rate may open above the RBI's repo rate of 6.50% due to demand for funds from banks.

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

CALL RATE

5.75%--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 repo rate on high demand for funds amid tight liquidity

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 in early trade, dealers said. At 0945 IST, the one-day call money rate was 6.60%, against 6.00% at close for two-day loans on Saturday. 

According to the data from RBI's website, the liquidity surplus widened slightly to INR 611.54 billion on Friday from 423.70 billion on Thursday. While there were outflows for tax deducted at source and excise duty on Thursday, some inflows which were unaccounted for prevented the surplus from falling, dealers said. 

Going forward, liquidity is expected to remain tight due to outflows for tax deducted at source and excise duty payments, dealers said. The outflows for these are expected to drain out around INR 500 billion from banking system liquidity, dealers said. 

During the day, outflows of INR 300 billion are scheduled for payment towards the auction of government securities on Friday. This will also add to the pressure on banking system liquidity, dealers said. As a result, the RBI will conduct an overnight variable rate repo operation for a notified amount of INR 500 billion at 1000-1030 IST. The market expects the auction to be fully subscribed due to high demand for funds ahead of the upcoming outflows, dealers said. (Siddhi Chauhan)

Following are the other highlights:

* The weighted average call rate was 6.65%, against 6.15% on Saturday.

* The weighted average rate for triparty repo was 6.53%, against 6.57% on Thursday.

* Reversal of the standing deposit facility will add INR 62.89 billion to the banking system, while reversal of the marginal standing facility will drain INR 24.75 billion.

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

End

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

Edited by Ashish Shirke

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