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Informist, Monday, Dec. 16, 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 Monday owing to demand for funds from banks amidst tax outflows, dealers said. The one-day call money rate ended at 6.70%, as against 6.80% for three-day loans on Friday.

The weighted average call money rate was near the RBI's marginal standing facility rate at 6.70%, against 6.68% at the previous close. For the triparty repo market, the weighted average rate was at 6.69% compared to 6.65% on Friday.

Tight liquidity conditions and outflows on account of advance tax payments led to high volume in the interbank borrowing market, dealers said. On Sunday, the systemic liquidity was in a surplus of INR 335.33 billion, against a surplus of INR 232.83 billion on Friday, RBI data showed. The liquidity surplus was INR 643.11 billion on Thursday. "The advance tax outflows likely started from Friday, and the remaining amount left the system today (Monday)," a dealer with a state-owned bank said.

Dealers expect the total outflows for the advance tax payment to be in the range of INR 1.25 trillion to INR 1.50 trillion. "The (money market) rates would have risen even higher but the release of liquidity from the CRR (cash reserve ratio) gave some relief to the banks." 

At its monetary policy review on Dec. 8, the RBI announced a cut in the cash reserve ratio of banks' net demand and time liabilities by 50 basis points to 4%, in two tranches. The first cut of 25 basis points came into effect from Saturday, and the second cut of 25 basis points will come into effect from the fortnight starting Dec. 28. The RBI estimated the move to increase liquidity in the banking system by INR 1.16 trillion. 

To provide further stimulus to the liquidity and keep the call money rate around the RBI's repo rate, the central bank conducted a four-day variable rate repo auction for INR 1.00 trillion. Banks placed bids amounting to INR 757.75 billion at the auction, all of which were allotted by the RBI.

Dealers cited anticipation of lower triparty rates as the reason for under-subscription at the auction. "Some dealers were counting on the triparty repo rates to ease during the day, so they did not bid aggressively at the VRR auction," a dealer with a private bank said. 

Dealers also anticipate an announcement from the RBI regarding the purchase of government securities through an open market operation. "There is a likelihood that the RBI might come up with an OMO if it thinks that the liquidity slips into deficit and if the interbank borrowing rates trade above the MSF rate," a dealer with another private bank said. 

After market hours on Monday, the central bank announced a three-day variable rate repo auction for INR 500 billion, which will take place at 1000-1030 IST on Tuesday.

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

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

6.70%--Monday's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above MSF on high demand for funds post advance tax outflows

MUMBAI – The interbank call money rate was above the Reserve Bank of India's marginal standing facility of 6.75% on Monday due to high demand of funds from banks after advance tax outflows sucked out most of the liquidity from the banking system, dealers said. The RBI's four-day variable rate repo auction of INR 1 trillion, held between 1000 IST and 1030 IST, may help ease demand for funds from banks, dealers said.

At 1000 IST, the one-day call money rate was 6.80%, against 6.80% for three-day loans at close on Friday. According to data on the RBI's website, the liquidity surplus narrowed to INR 232.83 billion on Friday from INR 643.11 billion on Thursday.

"The advance tax outflows took out most of the liquidity, and now it is expected to remain tight at least until the next weekend, but the VRR will help keep rates slightly in check," a dealer at a state-owned bank said.

Borrowing by banks through the RBI's marginal standing facility has also risen slightly as rates in the tri-party repo market were higher than expected, dealers said. On Friday, banks had borrowed INR 89.52 billion from the RBI through the marginal standing facility, compared with INR 12.31 billion the previous day.

"Banks decided to borrow through MSF because the TREPS rate (triparty repo rate) was trading at 6.80%, whereas banks can borrow at 6.75% through MSF," a dealer at a private bank said. "Due to outflows, banks are in need of funds so they chose comparatively cheaper alternative."

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 despite the RBI's decision to cut banks' cash reserve ratio, which came into effect on Saturday. "The CRR cut helped, but it was only INR 500 billion, whereas advance tax took out north of INR 1 trillion from the system, so the rates will remain high," a dealer at a private bank said.

At its monetary policy review on Dec. 8, the RBI announced a cut in the cash reserve ratio of banks' net demand and time liabilities by 50 basis points to 4%, to be effected in two tranches. The first cut of 25 bps came into effect from Saturday, and another 25 bps cut will come into effect from the fortnight starting Dec. 28. The RBI estimated the move to increase liquidity in the banking system by INR 1.16 trillion.

On Friday, the RBI had infused INR 750.04 billion in the system through a 14-day variable rate repo auction. The central bank received bids worth INR 791.61 billion against a notified amount of INR 750 billion at a cut-off rate of 6.52%. The reversal of the tender will take place on Dec. 27.

Following are the other highlights:

* The weighted average call rate was 6.79%, against 6.68% on Friday.

* The weighted average rate for triparty repo was 6.61%, against 6.65% on Friday.

* Reversal of the standing deposit facility will add INR 589.23 billion to the banking system, while reversal of the marginal standing facility will drain INR 89.52 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 Saji George Titus

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