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Informist, Monday, Dec. 23, 2024

By Siddhi Chauhan

MUMBAI – The interbank call money rate ended at the Reserve Bank of India's Standing Deposit Facility rate of 6.25% Monday as demand for funds eased towards the end of the day, dealers said. The one-day call money rate ended at 6.25%, the same as the rate for two-day loans on Saturday. 

According to RBI data, the liquidity deficit in the banking system remained wide at INR 1.88 trillion on Sunday, against INR 1.91 trillion on Saturday. "On Saturday, outflows of around INR 500 billion-600 billion must have happened for goods and services tax," a dealer at a state-owned bank said. "Overall, easily INR 1.75 trillion would have left the banking system for these outflows." 

In order to ease the banking system liquidity and money market rates, the central bank conducted an overnight variable rate repo operation for a notified amount of INR 750 billion at 1000-1030 IST on Monday. RBI accepted INR 750.06 billion. At the auction, the central bank set the cut-off rate of 6.53%. It received bids worth INR 1.12 trillion.

Seeing a high demand for funds, the central bank conducted a four-day variable rate repo operation at 1245-1315 IST for a notified amount of INR 750 billion. However, this auction did not draw significant demand, the central bank received only bids worth INR 362.75 billion, which were accepted by the RBI at a cut-off rate of 6.51%. 

"The second VRR auction did not see good demand because some banks had already panic-borrowed thinking that rates wouldn't cool off. However, after the overnight rate repo operation, triparty repo rates were traded somewhere around 6.20%," a dealer at a private bank said. "So those who were in need of funds preferred to borrow through the triparty repo rate instead of VRR."

During the day, outflows worth INR 290 billion took place due to payment for government securities auctioned on Friday. Apart from that, no other major inflows or outflows took place on Monday, dealers said. 

The following are the other highlights:

* The weighted average call rate was 6.74%, against 6.14% on Saturday.

* The weighted average rate for triparty repo was 6.61%, against 6.62% on Saturday.

* Reversal of the standing deposit facility added INR 466.14 billion to the banking system, and reversal of the marginal standing facility drained INR 119.72 billion.

OUTLOOK

* On Tuesday, the one-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.
* During the day, the call rate is seen in a range of 6.00-6.70%, dealers said.

CALL RATE

6.25%--Monday's close for one-day loans

6.75%--Monday's open for one-day loans

6.25%--Saturday's close for two-day loans

BENCHMARK MIBOR (in per cent)

Mumbai Interbank Offer Rates compiled by Financial Benchmarks India:

India Call: At RBI's MSF rate as liquidity deficit widens to near 7-mo high

MUMBAI – The interbank call money rate opened at 6.75%, the Reserve Bank of India's marginal standing facility rate, on Monday, due to demand for funds from banks as liquidity deficit in the system rose to a near seven-month high, dealers said. The one-day call rate opened at 6.75%, against Saturday's close of 6.25% for two-day loans. "The liquidity deficit has widened further, which will keep rates tight at least until the end of the month," a dealer at a state-owned bank said. 

According to data on the RBI's website, the liquidity deficit widened on Friday to INR 1.76 trillion from INR 1.62 trillion on Thursday. The liquidity deficit rose to the highest level seen since May. 26 due to outflows of goods and services tax, which drained INR 300 billion-INR 400 billion on Saturday. In the last three days of the previous week, INR 1.5 trillion-1.75 trillion were drained from the banking system due to goods and services tax outflows, dealers said. 

The strain on liquidity can also be seen in the lower amount parked in the standing deposit facility. On Friday, banks parked INR 84.67 billion at the RBI's standing deposit facility against INR 520.03 billion parked on Thursday. 

Dealers said the RBI's INR 750-billion overnight variable rate repo auction at 1000-1030 IST will ease liquidity conditions temporarily going forward. "VRR might help a little, but the pressure on liquidity is going to stay," a dealer at another state-owned bank said. 

Following are the other highlights:

* The weighted average call rate was 6.83%, against 6.14% on Saturday.

* The weighted average rate for triparty repo was 6.69%, against 6.62% on Saturday.

* Reversal of the standing deposit facility will add INR 84.67 billion to the banking system, and reversal of the marginal standing facility will drain INR 2.58 billion.

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

End

Edited by Saji George Titus

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