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Informist, Friday, Dec. 13, 2024

By Siddhi Chauhan and Kabir Sharma

MUMBAI – The interbank call money rate ended above the Reserve Bank of India's marginal standing facility rate of 6.75% on Friday as outflows on account of advance payments weighed on liquidity, dealers said. "As per my estimate, outflows for advance tax will amount to INR 1.25 trillion easily, it could even go higher than that," a dealer at a private bank said. "There is a chance of liquidity to slip into a deficit after these outflows." 

The three-day call money rate ended at 6.80%, against 5.75% for one-day loans on Thursday. According to data on the RBI's website, the liquidity surplus widened slightly to INR 643.11 billion on Thursday from INR 471.29 billion on Wednesday.

Dealers said money market rates remained on the higher side during the day because liquidity was under pressure due to advance tax outflows starting Friday. "Dec. 15 is a non-working day, so the outflows for advance tax started from today (Friday)," a dealer at a state-owned bank said. The weighted average rate for triparty repo was 6.65%, against 6.47% on Thursday, while the weighted average call rate was 6.68%, against 6.62% the previous day.

Going forward, money market rates are expected to rise further as the outflows of goods and service tax are expected to drain around INR 1 trillion from the banking system, dealers said. The outflows for goods and service tax will begin from next week, dealers said. 

Dealers also said that amid the above-mentioned outflows, the inflows from the cut in cash reserve ratio may only provide a temporary fix as that alone won't be enough for the amount of outflows December has in store. "The inflows from the CRR cut may provide relief, but that won't be enough because in December, outflows are very heavy," dealer added. Dealers have pegged outflows for advance tax itself to drain around INR 1.25 trillion-INR 1.50 trillion from the banking system, dealers said. 

The RBI's decision to cut the cash reserve ratio of banks comes into effect this weekend. The RBI cut the cash reserve ratio of banks by 25 basis points effective from the fortnight starting Saturday, and by another 25 bps from the fortnight starting Dec. 28, bringing it to 4% of banks' net demand and time liabilities. The RBI has estimated the move to increase liquidity in the banking system by INR 1.16 trillion.

The following are the other highlights:

* The weighted average call rate was 6.68%, against 6.62% on Thursday.

* The weighted average rate for triparty repo was 6.65%, against 6.47% on Thursday.

* Reversal of the standing deposit facility will add INR 989.10 billion to the banking system, while reversal of the marginal standing facility will drain INR 12.31 billion.

OUTLOOK

* On Monday, the one-day call money rate may open near the RBI's marginal standing facility rate of 6.75% due to demand for funds from banks.

* During the day, the call rate is seen in a range of 6.00-6.80%, dealers said.

CALL RATE

6.80%--Friday's close for three-day loans

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

5.75%--Thursday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Near MSF rate due to high demand for funds before tax outflows

MUMBAI – The interbank call money rate was near the Reserve Bank of India's marginal standing facility of 6.75% on Friday ahead of advance tax outflows, scheduled to start later in the day, dealers said. The RBI is scheduled to conduct a 14-day variable rate repo auction of INR 750 billion at 1030-1100 IST, which may help ease the demand for funds from banks.

"Advance tax outflows are starting today (Friday), so pressure will be there. However, ease in liquidity and RBI doing VRR will help a bit," a dealer at a state-owned bank said.

At 0945 IST, the three-day call money rate was 6.74%, against 5.75% for one-day loans at close on Thursday. According to data on the RBI's website, the liquidity surplus widened slightly to INR 643.11 billion on Thursday from INR 471.29 billion on Wednesday.

Dealers said rates in the money market are expected to remain on the higher side going forward as liquidity conditions are likely to be tight after the outflows for advance tax. Outflows for advance tax payments are expected to start from Friday as markets are shut on Dec. 15, dealers said. Around INR 1.25 trillion-INR 1.50 trillion is expected to be drained out from the banking system due to outflows for advance tax, dealers said. 

However, the liquidity surplus increased Thursday on account of the RBI conducting dollar-rupee buy/sell swaps in the foreign exchange market on Tuesday, with T+2 settlement, dealers said.

"They (RBI) have conducted buy/sell of around INR 1 trillion in tranches, so that is why we are seeing these inflows come in," a dealer at another state-owned bank said. Owing to the ease in liquidity, funds parked with the central bank through the standing deposit facility increased to INR 989.10 billion on Thursday from INR 859.61 billion on Wednesday.

Liquidity will also be supported as the RBI's decision to cut the cash reserve ratio of banks comes into effect this weekend, dealers said. The RBI cut the cash reserve ratio of banks by 25 basis points effective from the fortnight starting Saturday, and by another 25 bps from the fortnight starting Dec. 28, bringing it to 4% of banks' net demand and time liabilities. The RBI estimated the move to increase liquidity in the banking system by INR 1.16 trillion.

Following are the other highlights:

* The weighted average call rate was 6.76%, against 6.62% on Thursday.

* The weighted average rate for triparty repo was 6.60%, against 6.47% on Thursday.

* Reversal of the standing deposit facility will add INR 989.10 billion to the banking system, while reversal of the marginal standing facility will drain INR 12.31 billion.

* During the day, the call rate is seen in a range of 6.20-6.90%. (Kabir Sharma)

End

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

Edited by Akul Nishant Akhoury

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