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Informist, Wednesday, Dec. 18, 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 Wednesday as demand for funds eased towards the end of trade, with most banks having met their requirements earlier in the day, dealers said. The one-day call money rate ended at 5.85% as against 5.75% Tuesday. However, the weighted average call rate was significantly higher at 6.69%, broadly the same as 6.70% on Tuesday.

According to data from the Reserve Bank of India, the central bank on Tuesday injected INR 1.45 trillion on a net basis into the banking system, up from INR 1.10 trillion on Monday, indicating some more tightening of liquidity conditions. Market participants attributed the increase in the liquidity deficit to some remaining outflows for advance tax payment.

"The outflows for advance tax leave the banking system in tranches, so yesterday (Tuesday) would have been the last of the flows for the tax payment," a dealer with a private bank said. Outflows for corporate advance tax payments, which started Friday, have drained around INR 1.25 trillion to INR 1.75 trillion from the banking system, dealers estimated.

According to finance ministry data released earlier today on Wednesday, as of Tuesday, total advance tax collections for 2024-25 (Apr-Mar) stood at INR 7.56 trillion, or INR 3.20 trillion higher than what it was as on Sept. 17.

While there were no significant outflows on Wednesday, the liquidity deficit led money market rates to trade around the Marginal Standing Facility rate of 6.75% for much of the session as "banks needed funds to deploy towards (maintaining) cash reserves", a dealer with a state-owned bank said. Banks maintained INR 9.86 trillion with the RBI on Tuesday compared to the average daily cash reserve requirement of INR 9.66 trillion for the fortnight which began Saturday. The RBI did not conduct a variable rate repo auction on Wednesday.

Market participants expect the liquidity deficit to widen further in the coming days on account of Goods and Services Tax outflows, which will start Friday, with the RBI's interventions in the spot foreign exchange market to stop the rupee from falling further also draining liquidity from the system, dealers said. Wednesday, the Indian currency closed at a record closing low of 84.95 per dollar.

Traders remain divided in their opinion on whether the RBI will announce an open market purchase of gilts to infuse liquidity. While some dealers think the central bank will not consider OMO purchases unless it has exhausted every other tool in its arsenal, others expect it to step in and buy gilts from the secondary market to durably ease conditions.

Following are the other highlights:

* The weighted average call rate was 6.69% as against 6.70% on Tuesday.

* The weighted average rate for triparty repo was 6.51% as against 6.62% on Tuesday.

* Reversal of Standing Deposit Facility added INR 900.72 billion to the banking system.

OUTLOOK

* On Thursday, the one-day call money rate may open near the 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 6.00-6.85%, dealers said.

CALL RATE

5.85%--Wednesday's close for one-day loans

6.85%--Wednesday's open for one-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Above repo rate;advance tax outflows exert pressure on liquidity

MUMBAI – The interbank call money rate was above the Reserve Bank of India's repo rate of 6.50% on Wednesday due to demand for funds from banks as the liquidity deficit in the banking system increased further, dealers said. At 1018 IST, the one-day call money rate was 6.60%, against 5.75% on Tuesday.

According to data on the RBI's website, the liquidity deficit widened to INR 1.45 trillion on Tuesday from INR 1.10 trillion on Monday. "The last tranche of advance tax outflows would have taken place on Tuesday. I think the outflow for the same is minor," a dealer at a private bank. "Apart from that, no other outflow took place on Tuesday." Outflows for corporate advance tax payments likely drained INR 1.25 trillion to INR 1.75 trillion from the banking system, dealers said.

Despite the outflows, money market rates cooled off as the central bank conducted two variable rate operations on Tuesday, dealers said. "We are seeing an easing in the (money market) rates because of the repo tenders conducted by RBI yesterday," a dealer at a state-owned bank said. "Before the VRR auctions, the rates were quite high." At 1021 IST, the weighted average rate for triparty repo was 6.58% against 6.62% on Tuesday.

At the three-day variable rate repo auction held on Tuesday, the RBI took bids worth INR 500.05 billion against INR 835.70 billion of bids tendered and set a cut-off rate of 6.54%. At the INR 250-billion overnight rate repo auction held the same day, the RBI received bids amounting to INR 231.88 billion, which was accepted entirely at a cut off rate of 6.51%. 

Consequently, the banks increased the funds parked with the RBI through the standing deposit facility, dealers said. According to RBI data, funds parked by banks under the standing deposit facility increased to INR 900.72 billion on Tuesday from INR 762.41 billion on Monday.  

Following are the other highlights:

* The weighted average call rate was 6.81%, against 6.70% on Tuesday.

* The weighted average rate for triparty repo was 6.58%, against 6.62% on Tuesday.

* Reversal of the standing deposit facility will add INR 900.72 billion to the banking system, and reversal of the marginal standing facility will drain INR 2.95 billion.

* During the day, the call rate is seen in a range of 6.00-6.90%. (Siddhi Chauhan)

End

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

Edited by Deepshikha Bhardwaj

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