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Informist, Friday, Dec. 20, 2024

By Siddhi Chauhan

MUMBAI – The interbank call money rate ended above the Reserve Bank of India's Marginal Standing Facility rate of 6.75% Friday as outflows caused by goods and services tax payments widened the liquidity deficit, dealers said. The three-day call money rate ended at 6.85%, against 5.75% for one-day loans on Thursday. 

According to data on the RBI's website, the liquidity deficit widened on Thursday to INR 1.62 trillion, from INR 1.51 trillion on Wednesday. The liquidity deficit rose to the highest level seen since Jun. 24 due to outflows of goods and services tax which drained around INR 300 billion-400 billion on Thursday. A much higher share for the same is expected to have been drained from the banking system on Friday, dealers said.

"Goods and services tax outflows have drained around INR 1 trillion-1.2 trillion from the system today (Friday), which is a majority portion of the outflows," a dealer at a state-owned bank said. "Probably some outflows could also happen tomorrow (Saturday). After GST outflows, liquidity will be in a deficit of INR 2 trillion-2.5 trillion." Apart from goods and services tax outflows, no other inflows or outflows were scheduled for the day, dealers said.

The cash crunch was visible in money market rates, which traded much higher than the previous day's levels.

To ease liquidity conditions and money market rates, the RBI conducted a seven-day variable rate repo operation with a notified amount of INR 1.5 trillion at 1000-1030 IST on Friday. RBI accepted INR 1.50 trillion. At the auction, the central bank set the cut-off rate of 6.52% at the auction. It received bids worth INR 2.01 trillion.

"In the morning, the rates were high as banks aggressively borrowed owing to GST outflows, but after the VRR auction, banks had some relief and the rates eased after that," a dealer at a private bank said. "But they were still around repo rate (6.50%) because the outflows were leading to a strain on the already tight liquidity." 

Dealers expect Saturday to be the last day for outflows of goods and services tax. Altogether, outflows for the same are estimated at INR 1.50 trillion-1.75 trillion, dealers said. 

The following are the other highlights:

* The weighted average call rate was 6.78%, against 6.71% on Thursday.

* The weighted average rate for triparty repo was 6.71%, against 6.55% on Thursday.

* Reversal of the standing deposit facility will add INR 520.03 billion to the banking system.

OUTLOOK

* On Saturday, the two-day call money rate may open below the 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

6.85%--Friday's close for three-day loans

6.90%--Friday's open for three-day loans

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

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: Opens at 6.90%, highest since March as liquidity deficit widens
 

MUMBAI – The interbank call money rate opened at 6.90% on Friday, the highest level since late March, due to rise in demand for funds from banks amidst a widening liquidity deficit, dealers said. The three-day call rate opened at 6.90%, 15 basis points above the Reserve Bank of India's marginal standing facility rate, against 5.75% at close Thursday. "GST (goods and services tax) outflows were there yesterday, and they will continue today as well, so it's no surprise call is at such a high rate," a dealer at a state-owned bank said.

According to data on the RBI's website, the liquidity deficit widened on Thursday to INR 1.62 trillion, from INR 1.51 trillion on Wednesday. Dealers said the outflows for GST were INR 200 billion to INR 300 billion on Thursday and further outflows of INR 1.5 trillion are expected on Friday, which will weigh on liquidity.

The strain on liquidity can also be seen in the lower amount parked in the standing deposit facility and higher amount withdrawn from the marginal standing facility. On Thursday, banks parked INR 520.03 billion at the RBI's standing deposit facility against INR 611.25 billion parked on Wednesday. Borrowings from the marginal standing facility rose to INR 32.80 billion on Thursday from INR 17.34 billion on Wednesday.

Dealers said the RBI's seven-day variable rate repo auction at 1000-1030 IST is expected to see full subscription, and will ease liquidity conditions temporarily going forward. The reversal of the three-day variable rate repo held on Tuesday is expected to drain INR 500.05 billion from the banking system. "Deficit will further widen after the outflows for GST payment, month-end spending might be enough to provide adequate support but RBI will likely be active with VRR auctions and that might provide some support," a dealer at another state-owned bank said. "But the deficit might be there even in early January," they said.

Weighted average rate in the tri-party repo market also surged to 6.70% on Friday due to high demand of funds from banks, dealers said. "TREPS (triparty repo rate) itself is trading around 6.70-75% range, and there always is around 15 basis points spread between call and TREPS rates," a dealer at a state-owned bank said. "The outflows for goods and services tax which started on Thursday has led to further widening of liquidity, leading to higher rates."

Following are the other highlights:

* The weighted average call rate was 6.89%, against 6.71% on Thursday.

* The weighted average rate for triparty repo was 6.70%, against 6.55% on Thursday.

* Reversal of the standing deposit facility will add INR 520.03 billion to the banking system, and reversal of the marginal standing facility will drain INR 32.80 billion.

* During the day, the call rate is seen in a range of 6.00-6.95%. (kabir Sharma)

End

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

Edited by Deepshikha Bhardwaj

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